Hostile Takeovers: The Corporate Chess Game of Chaos

In the boardroom, a hostile takeover acts as an unfriendly move. While mergers and acquisitions are celebrated with champagne, leading to fruitful partnerships among companies, a hostile takeover starts with a rejected offer and ends with a siege. So, your question must be: what are hostile takeovers, and why are they subject to such scrutiny? 

In the world of corporate finance, a hostile takeover is like the relative who decides that they own the house. It occurs when the acquiring company (the bidder) attempts to take control of the target company (acquired company) against the wishes of the company’s management and board of directors. If the target company says “no”, the bidder goes over their heads and targets the shareholders directly. 

Process (The Onslaught)  

When a friendly merger isn’t an option, bidders usually deploy one of the following main strategies: 

· Tender Offer -The bidder attempts to buy shares directly from the shareholders at a premium (higher than the current market price) and persuade them to sell the shares to them. 

· Proxy Fight - The bidder either through persuasion or forcefully deploys their proxy votes to replace the current board of directors. These new members attempt to secure a majority and accept the bidder’s offer. 

· Open Market Purchase - The bidder quietly buys large blocks of stock in the open market and tries to gain controlling interest in the company (the company discloses the required percentage). 

The Defence Mechanism (The “Shield”) 

Though these strategies cannot be directly prevented, companies have created some creative ways to counter them: 

· Poison Pill – This strategy allows the existing shareholders to buy more stock at a discount, diluting the bidder’s interest and making the acquisition comparatively more expensive. 

· White Knight – A strategic partner or “friendly” company swoops in to buy the target company instead of the hostile bidder. 

· Golden Parachute – Severance packages for top executives that trigger during a takeover, making the cost of entry higher for the bidder. 

· Crown Jewel Defence – The target company sells off its most valuable assets to make the target company less attractive to the bidder, thereby reducing the chance of hostile takeovers. 

Example (Oracle): 

Oracle is often called the “Destroyer of Companies” through hostile takeovers because of its ruthless, calculated, and highly effective acquisition strategy, led by the master himself, Larry Ellison. Oracle uses a combination of aggressive strategies to pressure companies into accepting the offer. 

Between 2004 and 2010, Oracle spent roughly $40 billion acquiring dozens of rivals in the software industry.  Oracle vs. PeopleSoft (2003–05):

• This is one of the most famous hostile takeovers, lasting over 18 months. PeopleSoft announced a merger with J.D. Edwards, after which Oracle made a low $16-per-share offer to PeopleSoft’s shareholders.

• Larry Ellison publicly stated that if Oracle succeeded in the takeover, it would discontinue PeopleSoft’s products. To counter this threat, PeopleSoft launched a customer assurance program offering customers compensation of up to five times their license fee if Oracle acquired the company.

• Eventually, sustained pressure forced shareholders to surrender, and the takeover was completed at a value of $10.3 billion, with Oracle paying $26.50 per share.

Hostile takeovers are the ultimate expression of “survival of the fittest” in the corporate world. It shows that ownership for the company isn’t just bought – it’s taken.   Authored By: Aryaveer Batra