Hostile takeover is the modality of taking control of a company where, even without due approval from the company’s board of directors to be purchased, the buyer forces the acquisition.
In practice, it is as if you own a house and, when you put it up for sale, decide that you do not want to sell it to your neighbors. One of them, aware of this, shrugs and, using the legal and economic means available, buys his home anyway.
Sound aggressive? Well, the hostile name was not added to the denomination for nothing.
In general, the hostile takeover is part of a larger group – take over. The term designates nothing more than any purchase of one company by another, through the transaction of its shares on the Stock Exchange.
However, there are more “friendly” forms of take over, where the board of directors of the purchased company agrees with the negotiation.
One of the companies that has already gone through “friendly” take-over processes is the Body Shop (already bought by L’Oreal and, later, by Natura). On the other hand, among those who have already undergone hostile take-over attempts (another way of naming this tactic) are the Brazilian IMC (from the food industry) and the entertainment giant Netflix.
How does a hostile takeover work?
The process of making a hostile takeover is very similar to that of a common takeover.
This means that everything revolves around a Public Tender Offer (OPA) , which is a signal from the buyer to the market that he intends to acquire a large volume of shares in the company that he targets. Here, the acquisition date is also disclosed, along with the amount to be paid per share.
The big question, and what differentiates a hostile acquisition from a friendly acquisition, is the alignment of the company in question with this transfer of shares.
If it is friendly, there is already a pre-defined agreement between both parties, who work together so that the control transaction is facilitated and beneficial to the organization’s continuity. Therefore, the board must be aware and have a favorable decision.
If you are hostile, none of this happens. In general, the council vetoes the agreement, and may even establish measures that prevent it from materializing (as we will see in the next topic). If such measures are not taken (or approved, when suggested), the buyer can force the acquisition.
The issue is so dramatic that it motivates even fictional plots, as in the recent stories of the famous European comic Michel Vaillant. In it, protagonist and antagonist dispute the control of the company created by the first and taken through a hostile takeover by the second.
But we don’t need to resort to fiction to understand the aggressiveness contained in the decision to ignore the decision of a board of directors.
Returning to the practical example at the beginning of this text, it is as if your neighbor, even knowing your decision, went to the real estate company and made a proposal for the property – a real “I don’t care if you don’t want to sell to me, I will buy still, ”do you agree? We can already feel the resentment and the judgments running through the neighborhood.
How do companies protect themselves from a hostile takeover?
As we promised, there is still a way for companies to protect themselves from this type of takeover.
And it does not involve threatening any real estate agents – although the name of the main tactic maintains the dramatic tone of the story.
Poison pills (in free translation, poison pills ) is a determination that when a shareholder reaches the mark of holding 5% to 30% of the shares (depending on the company), he must make an offer throughout the organization. In other words, nothing about just becoming a controlling shareholder : it is everything or (almost) nothing.
Other mechanisms of the type are:
- Pac-man defense, which is when the target, in a twist, manages to buy the acquirer. It is as if, in the end, it was you who ended up buying your neighbor’s house.
- Golden parachute, which allows the organization’s executives to terminate their contracts, and receive high severance fines if a change of control occurs. In that case, you even sell the house, but take the furniture (and everything else that is valuable) with you.