What is a Defended Takeover Bid?
A defended takeover bid is a scenario in mergers and acquisitions where the management or board of directors of the target company actively opposes an acquisition attempt by another company or entity. This type of bid is often referred to as a hostile takeover, as the acquiring company seeks to gain control of the target company without the consent or cooperation of its management.
In a defended takeover, the target company’s directors employ various defense mechanisms to thwart the acquisition attempt. These defenses can range from legal strategies and corporate restructuring to public relations campaigns and shareholder rights plans. The objective is to make the takeover either unattractive or impossible for the acquiring company.
Examples of Defended Takeover Bids
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Yahoo vs. Microsoft (2008): In 2008, Microsoft made an unsolicited bid to acquire Yahoo for approximately $44.6 billion. However, Yahoo’s board of directors opposed the bid, arguing that it undervalued the company. Despite several efforts and increased offers, Microsoft ultimately withdrew its bid due to Yahoo’s defensive measures and refusal.
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Sanofi-Aventis vs. Genzyme (2010): In 2010, French pharmaceutical giant Sanofi-Aventis launched a hostile takeover bid for American biotechnology company Genzyme. The board of Genzyme initially rejected the bid, deeming it financially inadequate. The negotiations continued for several months, with Sanofi-Aventis employing various strategies to pressurize Genzyme. Eventually, an agreement was reached in early 2011 at an increased price.
Frequently Asked Questions
Q: What are common defense strategies used in a defended takeover bid? A: Common defense strategies include poison pills, white knight defenses, golden parachutes, crown jewel defense, and pac-man defense. Each of these tactics aims to protect the target company’s interests and hinder the acquisition process.
Q: Why do companies defend against takeover bids? A: Companies may defend against takeover bids to ensure they maintain control and continue their strategic direction. They may also believe the bid undervalues their company or detracts from an existing long-term growth plan.
Q: Can a defended takeover bid be successful? A: Yes, a defended takeover bid can still be successful if the acquiring company increases its offer or persuades the shareholders of the target company that the takeover is in their best interest. However, successful hostile takeovers are often more challenging and costly.
Q: How do shareholders influence defended takeover bids? A: Shareholders play a critical role in defended takeover bids. If a significant majority believes the acquisition is beneficial, they may vote against the board’s opposition, making it difficult for the company to continue resisting the bid.
Q: What is a white knight defense? A: A white knight defense involves the target company seeking a more favorable company to acquire it instead of the hostile bidder. This friendly acquirer is referred to as the “white knight.”
Related Terms
- Poison Pill: A strategy used by target companies to make their stock less attractive to the acquirer.
- White Knight: A friendly investor or company that acquires a target company to prevent a hostile takeover.
- Hostile Takeover: An acquisition attempt by an acquiring company that is resisted by the target company’s management.
- Golden Parachute: Contractual agreements for large compensation packages in case key executives are fired following an acquisition.
- Crown Jewel Defense: Selling off valuable assets to make the company less attractive to the hostile bidder.
Online References
- Investopedia: Hostile Takeovers
- Harvard Law School: Hostile Takeovers - Law and Strategy
- The Wall Street Journal: Corporate M&A News
Suggested Books for Further Studies
- “Mergers and Acquisitions: Cases and Materials” by Franklin Gevurtz
- “Takeover: A Guide to Mergers and Acquisitions” by Michael D. Goldberg
- “The Art of M&A, Fifth Edition: A Merger Acquisition Buyout Guide” by Stanley Foster Reed and Alexandra Lajoux
Accounting Basics: “Defended Takeover Bid” Fundamentals Quiz
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