What is a Hostile Bid?
Hostile Bid: Bidders offer hostile takeover bids directly to target business shareholders when management opposes the acquisition. Bidders often submit hostile bids via tender offers. In this case, the acquiring corporation proposes a high price for the target’s common shares.
Understanding Hostile Bids
Significant organizational changes can result from hostile bids. A proxy struggle may develop when a board takes defensive action to block a merger. The acquirer may try to persuade target shareholders to change management. Activist investors use hostile offers to compel takeovers and buyouts. For instance, activist investor Carl Icahn launched three hostile offers for Clorox in 2011.
Seeking Shareholders
Both the buyer and target firm employ various techniques to obtain shareholder votes. Schedule 14A provides shareholders with financial and acquisition details about the target firm. The purchasing business sometimes uses a proxy solicitation service to prepare a list of shareholders and contact them to present its case.
The business might call or write about why the acquirer wants to make significant changes and how the purchase could increase shareholder wealth.
Shareholders or brokerages send their votes to the business aggregating the information, such as a stock transfer agency or brokerage. Before the shareholders’ meeting, the target company’s corporate secretary receives all votes. Proxy solicitors can review and dispute ambiguous votes.
Hostile vs. Friendly Bid
Unlike aggressive bids, management approves friendly bids. Management and the board of directors accepting a bid is a friendly bid. The acquiring corporation usually has more corporate and pertinent information. A hostile takeover may require little inside knowledge about the firm due to unwelcoming management.
Hostile Bid Example
After Genzyme management repeatedly rejected their offer, Sanofi-Aventis offered Genzyme stockholders $69 a share in October 2010. Meanwhile, Sanofi CEO Chris Viehbacher wrote Genzyme CEO Henri Termeer a letter claiming to have the backing of shareholders with more than 50% of outstanding shares.
Sanofi gave shareholders until December 2010 to approve. According to experts, most shareholders thought Sanofi’s offer was poor and rejected it.
In February 2011, Genzyme’s board of directors authorized a transaction for $74 per share, with contingent value rights connected to the performance of its investigational multiple sclerosis medicine, Lemtrada.
Conclusion
- Shareholders get hostile takeover proposals after management rejects them.
- After a hostile offer, the purchasing corporation may try to replace the target business’s management in a proxy struggle.
- Non-hostile bids involve management accepting a takeover offer.
