What is a hostile takeover, and is it legal in California?
A hostile takeover is when a separate corporation acquires or takes over a company without seeking or obtaining the approval or consent of the board of directors. The acquired company is the target company. The one executing the takeover is the acquirer. Hostile takeovers are legal, but many legal barriers can manifest during the takeover.
How does a hostile takeover happen in a company?
The acquirer will first attempt to make a friendly offer to the board members to buy the target company or gain significant control over it. When the company’s management and board of directors reject the proposal, the acquirer will go directly to the target company’s shareholders. A hostile takeover can happen in the following ways:
Tender offers: A tender offer is when the acquirer offer to purchase the target company’s shares at a premium price. The premium price is above market value, and the acquirer will only pay that price in exchange for majority of the shares.
Proxy vote: A proxy vote is when the acquirer convinces the shareholders to replace board members by voting them out of management. The aim is to remove opposing board members and replace them with people who support the acquisition. It is an effective way to eliminate obstacles to the acquisition.
The acquirer might also look for ways to lessen the public appeal of your company. It can use fraudulent or devious business tactics to substantially affect the value of your stocks and shares.
You need preemptive measures and a solid defense strategy
If you believe your company could be a victim of a hostile takeover, you can implement preventive measures to protect the company. Similarly, you can use legal defense strategies to stop the hostile takeover before it finalizes. The poison pill defense strategy can reverse the takeover or make the acquisition less attractive. However, it could have adverse effects if you do not apply it appropriately and accurately.
You should also see if certain threats or scares to your company have merit. Remember that you always have numerous options, and it is imperative to choose the best route to safeguard the interests of your company.