Takeover and Defence Tactics, Methods, Approaches, Benefits, Challenges

Takeover, also known as an acquisition, is a process in which one company takes control of another company by purchasing its shares or assets. Takeovers can be friendly or hostile, depending on the agreement or consent of the target company’s management.

In a friendly takeover, the acquiring company approaches the target company’s management and negotiates a deal that is beneficial to both companies. This type of takeover is usually initiated by the acquiring company when it sees an opportunity to expand its business or gain access to new markets or resources.

In a hostile takeover, the acquiring company makes an unsolicited bid to purchase the target company’s shares without the agreement or consent of the target company’s management. Hostile takeovers can be initiated by an outside investor or another company that sees an opportunity to acquire the target company’s assets at a discounted price.

Takeover Methods:

• Tender Offer:

Tender offer is a public offer made by the acquiring company to purchase the target company’s shares directly from its shareholders at a premium price.

• Merger:

Merger is a type of acquisition in which two companies combine to form a new company.

• Acquisition of Assets:

An acquisition of assets is a type of takeover in which the acquiring company purchases specific assets of the target company, rather than its shares.

• Leveraged Buyout:

Leveraged buyout is a type of acquisition in which the acquiring company uses a large amount of debt to finance the purchase of the target company.

Takeovers can have a significant impact on the target company, its shareholders, and its employees. It is important for companies to carefully consider the potential benefits and risks of a takeover before proceeding with the process. Additionally, companies should ensure that they comply with all legal and regulatory requirements related to takeovers, including shareholder approval and antitrust laws.

Takeover and defence tactics are strategies that companies use in response to hostile takeover attempts by another company or investor. Here is a detailed overview of takeover and defence tactics:

Takeover Tactics:

• Tender offer:

This is a public offer made by the acquiring company to purchase the target company’s shares directly from its shareholders at a premium price.

• Hostile bid:

This is a takeover attempt that is made without the agreement or consent of the target company’s management.

• Proxy fight:

This is a strategy in which the acquiring company attempts to gain control of the target company by soliciting the support of its shareholders and replacing its board of directors with its own nominees.

• Leveraged buyout:

This is a type of acquisition in which the acquiring company uses a large amount of debt to finance the purchase of the target company.

Defence Tactics:

• Poison pill:

This is a defence tactic in which the target company issues new shares of stock to its existing shareholders, making it more expensive for the acquiring company to purchase a controlling stake in the company.

• Golden parachute:

This is a defence tactic in which the target company offers generous compensation packages to its executives in the event of a takeover, making it less attractive for the acquiring company to take over the company.

• Pac-man defence:

This is a defence tactic in which the target company attempts to acquire the acquiring company, turning the tables on the takeover attempt.

• White knight:

This is a defence tactic in which the target company seeks out a friendly third-party company to acquire it and prevent the hostile takeover attempt.

• Crown jewel defence:

This is a defence tactic in which the target company sells off its most valuable assets to make itself less attractive to the acquiring company.

• Scorched earth defence:

This is a defence tactic in which the target company takes drastic measures to make itself unattractive to the acquiring company, such as taking on a large amount of debt or making major investments that would reduce its profitability.

Approaches of Takeover and Defence Tactics

There are different approaches to takeover and defence tactics that companies can adopt depending on their specific situation and goals.

• Offensive Approach:

An offensive approach is when a company actively pursues a takeover of another company or initiates a hostile bid. This approach is usually taken when a company is looking to expand its business, enter new markets, or gain access to valuable resources.

• Defensive Approach:

Defensive approach is when a company takes steps to defend itself against a hostile takeover attempt. This approach is usually taken when a company wants to maintain control over its business, protect its assets, or preserve its culture and values.

• Negotiation Approach:

Negotiation approach involves the two companies engaging in discussions to reach a mutually acceptable agreement. This approach can be used by both the acquiring and target companies to reach a compromise that benefits both parties.

• Legal Approach:

Legal approach involves using legal action to challenge or prevent a hostile takeover attempt. This approach can include challenging the validity of a tender offer, filing lawsuits against the acquiring company, or seeking court injunctions to block the takeover attempt.

• Tactical Approach:

Tactical approach involves using a combination of different takeover and defence tactics to achieve the desired outcome. This approach can include using a poison pill to make the target company less attractive to the acquiring company, while at the same time seeking out a friendly third-party company to acquire the target company.

Takeover Tactics and Their Benefits and Challenges

1. Friendly Takeover:

• Benefits:
  • Mutual benefits to both companies.
  • Easier integration due to cooperation.
  • Preserves goodwill and brand image.
• Challenges:
  • Higher cost due to mutually agreed terms.
  • Requires negotiation and agreement, which can be time-consuming.

2. Hostile Takeover:

• Benefits:
  • Can be quicker to execute if the acquiring company can secure enough shares.
  • Potential for large financial gains if the takeover is successful.
• Challenges:
  • Can lead to bad publicity and damaged relationships.
  • Risk of overpayment due to premium on shares to convince shareholders.
  • Post-takeover integration can be difficult due to resistance from the target’s management and employees.

3. Bear Hug:

• Benefits:
  • Appears as a friendly takeover but with pressure, making it hard to refuse without backlash.
  • Can speed up negotiations if the offer is significantly attractive.
• Challenges:
  • Risk of paying a high premium.
  • May still face resistance from shareholders or board of the target company.

4. Proxy Fight:

• Benefits:
  • Allows for control without fully acquiring the company.
  • Can be cost-effective compared to buying a majority stake.
• Challenges:
  • Time-consuming and can lead to public disputes.
  • Uncertain outcome depending on shareholder votes.

5. Tender Offer:

• Benefits:
  • Direct appeal to shareholders can bypass hostile management.
  • Can be quicker than traditional merger negotiations.
• Challenges:
  • Requires a substantial financial outlay upfront.
  • Risk of not reaching the required threshold of share acquisition, nullifying the effort.

Defense Tactics and Their Benefits and Challenges

1. Poison Pill:

• Benefits:
  • Deters hostile takeovers effectively.
  • Gives the target company time to find better options or negotiate better terms.
• Challenges:
  • Can be seen as anti-shareholder, affecting stock price negatively.
  • May deter all potential acquisitions, including favorable ones.

2. White Knight:

• Benefits:
  • Provides an alternative to hostile takeover with a more compatible partner.
  • Can preserve more of the company’s current management and strategy.
• Challenges:
  • Limited control over who the white knight might be.
  • Potential to still result in significant changes to the company.

3. Pac-Man Defense:

• Benefits:
  • Turns the tables by attempting to take over the aggressor, potentially stopping the takeover.
• Challenges:
  • Very costly and can lead to financial strain.
  • High risk and can escalate the conflict.

4. Greenmail:

• Benefits:
  • Quick resolution to hostile takeover threats.
• Challenges:
  • Very expensive as it involves buying back shares at a premium.
  • Seen as a misuse of shareholder’s money, potentially leading to trust issues.

5. Staggered Board:

• Benefits:
  • Provides stability and reduces the risk of a sudden takeover.
• Challenges:
  • Can be viewed as a barrier to making necessary changes in management quickly.
  • May be circumvented over time if persistent takeover efforts are made.