Hostile Bid
A hostile bid is an acquisition attempt by a company or individual (the bidder) to take over another company (the target) without the approval, and often against the wishes, of the target company’s management and board of directors. This form of bid can be quite contentious and usually follows a rejected or uninvited offer by the prospective acquirer, turning public shareholders into the battleground.
Detailed Definition
In corporate terminology, a hostile bid occurs when:
- The acquirer directly makes the offer to the shareholders of the target company, ignoring or going beyond the recommendations of the board of directors.
- The bidder may bypass the company’s board and management through tactics such as a tender offer (where they offer to purchase shares from shareholders at a premium price to gain control), proxy fight (solicitation of shareholder votes to replace the company’s board), or other aggressive strategies.
Key characteristics include:
- Unsolicited: The offer is made without prior consultation or agreement with the target company’s board.
- Direct Appeal: The acquirer makes a direct appeal to the company’s shareholders.
- Premium Offers: Typically, the bidder offers a premium over the current market value per share to entice shareholders to tender their stocks.
Examples of Hostile Bids
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Kraft Foods / Cadbury (2009-2010): Kraft Foods initiated a hostile bid to take over Cadbury, which Cadbury initially resisted. However, after persistent efforts and increased offers, Kraft successfully acquired Cadbury.
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Sanofi-Aventis / Genzyme (2010-2011): When Genzyme initially rebuffed Sanofi-Aventis’ proposal, Sanofi proceeded with a hostile bid, eventually leading to negotiations and a successful takeover.
Frequently Asked Questions
Q: What is a hostile bid?
A: A hostile bid is an attempt by an acquiring company to take over a target company against the wishes of the target company’s management and board of directors.
Q: How does a hostile bid differ from an agreed bid?
A: An agreed bid is a mutual agreement between the bidding and target companies, typically after successful negotiations, whereas a hostile bid occurs without such agreement and often against the target company’s wishes.
Q: What strategies are commonly used in a hostile bid?
A: Common strategies include tender offers and proxy fights.
Q: Why do companies resort to hostile bids?
A: Companies might pursue hostile bids if they strongly believe in the strategic value of the acquisition and are unable to negotiate a friendly or agreed deal.
Q: How can a target company defend against a hostile bid?
A: Strategies include poison pills (shareholders’ rights plans), white knight defenses (seeking a more favorable company to acquire them), and golden parachutes (lucrative benefits for executives in case of takeover).
Related Terms
- Agreed Bid: A takeover bid mutually agreed upon by both the acquirer and the target company.
- Tender Offer: An offer to purchase some or all of shareholders’ shares in a corporation at a premium to the market price.
- Proxy Fight: An attempt by a party to gain control of a company by persuading shareholders to vote out current management and board members.
- Poison Pill: A defensive strategy used by a target company to make itself less attractive to potential acquirers.
Online References
- Investopedia: Hostile Takeover Definition
- Corporate Finance Institute: Hostile Takeover
Suggested Books for Further Studies
- “Mergers and Acquisitions in a Nutshell” by Dale A. Oesterle
- “The Art of M&A: A Merger Acquisition Buyout Guide” by Stanley Foster Reed
- “Mergers, Acquisitions, and Other Restructuring Activities” by Donald DePamphilis
Accounting Basics: “Hostile Bid” Fundamentals Quiz
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