Hostile take overs are when one company attempts to take over a company that doesn’t wished to be taken over, this is usually done by either the acquiring company attempting to buy out stakeholders or influence the management, or change, to get the deal approved. This can cause many problems for the business, such as contrasting cultures in the business which could lead to an unsuccessful business with multiple goals and the two companies could be heading in opposite directions.
Also by acquiring the business in this way there could be potential problems in the structure of the business, such as when Vodafone took over many companies and couldn’t successfully integrate the companies into one solid structure. When Kraft decided to take over Cadburys by acquiring over 75% of the shares, by which in UK law enables them to delist the shares off the Stock market. This was widely rejected by employees who wanted to remain under the name of Cadburys as they felt that they could lose their jobs, this was shown to take this direction in 2011 when they closed the original factory although they had said they weren’t to do this.
They were also found to break many promises that they had made before the deal was finalised, however due to the size and success of both companies they managed to have continued success after the takeover. However a Hostile takeover is unlikely to be successful because of key board members may be worried about their position should the company be acquired, they use many different methods to prevent the takeover. This is certainly one key reason that takeovers are likely to fail; one method they use is the Poison pill.
This is when the board of directors sell more shares should one party gain too many shares, therefore devaluing the shares bought by the company trying to take over the over company. This was the case when Carl Icahn attempted to take over Netflix but the board of directors felt that this wasn’t for them and stated that should he buy more than 10% of stock they would float more stock to the market, he currently owns 9. 75%.
This would then cause the takeover bid to be much more expensive for the party attempting to do so and would hopefully put them off the idea of trying to gain complete control of the company. Another method used by companies to prevent hostile takeover is the Golden Parachute, this is when should the CEO lose his job due to takeover, there would have to be a large pay out, sometimes millions of pounds, hopefully to deter a hostile takeover, this was the case in the appointment of Charles C. Tillinghast Jr. to TWA. To conclude I think that to some extent it’s true that hostile takeovers are prevented by key stake holders as they have the ability to vote on matters that can prevent the takeover, such as the board members, they can choose members who are likely to refuse any takeover, although should a lucrative deal be offered they have a large influence on the takeover.
However I think that the board of directors can, although not always, have much more influence on the potential hostile takeover, for example through the use of a poison pill it can effectively increase its businesses worth by offering shares at a lower price and increasing the cost for the acquiring company.