How does a hostile takeover occur?

How does a hostile takeover occur?

On Behalf of | Aug 23, 2021 | Mergers & Acquisitions |

Dramatic depictions of hostile takeovers remain a plot device in television and motion picture melodramas. Such financial developments play out in real life in Hawaii and other states where publicly traded companies operate. While the company’s present management might not want to sell, the “publicly traded” delineation means shares are available. As a result, another company could arrive to take ownership of the business no matter what the executives wish.

Hostile takeovers and shareholders

Mergers and acquisitions often follow an amicable process. One company offers to buy another, or a company puts itself up for sale. A potential buyer might make an offer on a publicly-traded company and receive a rebuke. That doesn’t mean the rejected party quits.

When management and executives decline to sell a controlling interest in a company, another entity could directly offer a deal to shareholders. If a third party legally purchases 30% ownership and shareholders account for 30% ownership, the company with a minority interest only needs to buy enough shares to bring its ownership to 51%.

Why would shareholders agree to sell their shares against the target company’s management’s wishes? Shareholders want to earn returns on their investments. They may appreciate a competitive and lucrative offer.

Another way to take over a company

A hostile takeover could occur without making any offers to buy stock from shareholders. When the target company’s management is the stumbling block, the aggressive company might try to fire the managers.

Firing management might seem like a harsh process, but doing so might be perfectly legal and a viable option. The target company’s executives might be unable to stop the actions.

Both sides may need to take legal action, though. Lawsuits could happen, and there could be contractual disputes and other matters to address. Things aren’t always smooth when forcibly purchasing a company from managers who don’t want to sell.