M&A

How to Survive a Hostile Takeover

hostile takeover

What is a hostile takeover?

According to Investopedia, companies are usually bought through formal agreements between boards of directors of both companies – the one that is buying (acquirer) and the one that is being bought (target company).  However, in terms of hostile takeover, the chilling clue is in the name – hostile.  In this case business handshake is more likely to happen behind CEO’s back , i.e. directly with shareholders or through getting rid of current managers altogether replacing them with people approved by a hostile acquiring company. How can this work? Well, there are not so bad and very bad news. Not so bad news is that you will either get an offer (lets hope it’s a good one) for some or even all of your shares in the company (tender offer). And very bad news is that you will be voted right out from your board by your very own shareholders, which is known as a proxy battle or a proxy fight.

Read on to check out some simple ad timely steps in which you can avoid a takeover.

Keep your corporate documentation secure

Using a virtual data room allows to establish granular access – no one can access the information against your will.

Face up to the breakdown in your business

When it so happens that there’s a breakdown in your company that is making either (or both) your shareholders and board members uneasy, don’t bury your head in the sand. Spot the clues and deal with the issue on your board before it blows up, and you find yourself an outsider in your own company.

Maintain a good working relationship with your employees

It is best to make sure, as a CEO or owner, that you don’t give employees or board members a reason to distrust you. Maintain a good relationship with them, and keep them onside – but keep an eye on them too. But if the reality is that a takeover will leave them better off, you had best jump ship. Just look at the Vodafone-Mannesmann takeover: for each share Mannesmann shareholders already owned, they gained 59 Vodafone shares – an offer no relationship with your shareholders could beat.

Be sure of your decision

As CEO or owner, it must be you who makes the decision whether to stay or go. If you choose to stay and fight, your reason to do so has to be stronger than the reason you’re being opposed. This will give you self-justifiability and spur you on after a setback. For example, while he eventually lost the battle, RJR Nabisco CEO F. Ross Johnson pursued a satisfactory resolution to the infamous KKR bidding war in the 1980s, meaning at least his settlement was considerable. He may have lost, but he didn’t lose everything.

Know who to trust

It is important to know who to trust. From this select group, you should build a war council or support team, and from there, make sure to rely on them frequently. If or when you survive the takeover, they’ll be the core of your team, and won’t forget the trust you put in them.

Get a third-party to investigate

If you feel the takeover is being conducted through rumor mongering, it may well be worth instigating a full investigation from a neutral party. This will shore up your leadership and reputation once you come out the other side of the bid.

Keep your board separated

Senior officers serving as both internal employees or managers and board members can create corruption, and particularly nepotism – favoring relatives or friends, by giving them positions within the company or with your contractors. It also makes it hard to withstand a takeover if other board members have too much influence over the outcome and the shareholders.

Related topics:Advice for Dealmakers
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