What is Hostile Bid?
613 reads · Last updated: December 5, 2024
A hostile bid is a specific type of takeover bid that bidders present directly to the target firm's shareholders because management is not in favor of the deal. Bidders generally present their hostile bids through a tender offer. In this scenario, the acquiring company offers to purchase the common shares of the target at a substantial premium.
Definition
A hostile takeover bid is a specific type of acquisition offer where the buyer directly approaches the shareholders of the target company because the management does not approve of the deal. The buyer typically makes a hostile takeover bid through a tender offer, offering to purchase the target company's common stock at a premium.
Origin
The concept of a hostile takeover bid originated in the mid-20th century as capital markets developed and mergers and acquisitions became more frequent. The 1980s were a peak period for hostile takeovers, especially in the United States, where many companies used this method for rapid expansion.
Categories and Features
Hostile takeover bids can be categorized into two main types: cash offers and stock swap offers. A cash offer involves the acquirer paying cash for the target company's shares, while a stock swap offer involves exchanging the acquirer's stock for the target company's stock. Features of hostile takeovers include not requiring the target company's management approval, potential management changes, and possible defensive measures by the target company, such as poison pills.
Case Studies
A classic example is the 1988 hostile takeover of RJR Nabisco by KKR, completed at $31 billion, which was the largest leveraged buyout at the time. Another example is the 2000 hostile takeover of the British mobile operator Mannesmann by the French telecom company Orange, completed at €180 billion.
Common Issues
Common issues investors face with hostile takeover bids include whether to accept the offer and how the takeover might affect the company's long-term prospects. Investors need to carefully assess the fairness of the offer and the potential impact of the acquisition on the company's future.
