Malicious Takeover
Malicious takeovers refer to the scenario where a company is taken over by hostile forces, usually a much larger competitor, with the intention of causing considerable damage to the smaller company. The goal of this type of takeover is to gain control of the company’s assets and to destroy its business operations. It can be a very difficult and challenging process for small business owners to protect their company against hostile takeovers.
There are several tactics that can be used to protect against a malicious takeover. The most effective is to have organized and strategic policies and procedures in place. Focusing on preventing hostile takeovers starts with understanding the basic concepts behind hostile takeovers. Most mergers and acquisitions are completed with the agreement of both parties and with the primary goal of creating value. Hostile takeovers, on the other hand, are generally conducted without the consent of the target company’s shareholders and are generally driven by financial gain rather than creating value.
In order to protect against a hostile takeover, all stakeholders should become familiar with early warning signs. These warning signs may include rumors of another company attempting to purchase a large portion of the company’s shares, or a sudden increase in the amount of shares traded. Management can also be proactive by developing a sound financial strategy and seeking counsel from experienced attorneys and financial advisors.
Another defensive tactic that can be employed to guard against hostile takeovers is the implementation of a “poison pill”. A poison pill is a specific contract that is put in place which is designed to make a hostile takeover unattractive to the hostile bidder. The poison pill works by providing a financial benefit to current shareholders that would be lost in the event of a hostile takeover.
In addition, management and shareholders can attempt to out-maneuver a hostile bid by utilizing defensive strategies such as company restructuring, issuing of new shares, and making it difficult for the hostile bidder to obtain shareholder approval for the takeover. A technique known as a “shark repellent” can also be used to deter hostile bidders. Shark repellents are artificial or regulatory obstacles that make it more difficult or costly for the hostile bidder to complete the takeover.
In the event that a hostile bidder does gain control of the company, there are other strategies that can be employed to protect the company’s assets and operations. Management can seek to modify company operations by working with potential friendly bidders or investors. The company can also enter into friendly negotiations with the hostile bidder in order to renegotiate terms. Additionally, the company can attempt to buy back shares or launch a proxy fight to safeguard company assets, operations, and employee rights.
Malicious takeovers can cause considerable damage to the target company and should not be taken lightly. While it is not always possible to prevent hostile takeovers, implementing effective strategies can minimize the risk and impact of a hostile bid. As the saying goes, “An ounce of prevention is worth a pound of cure.”
