Hostile takeover

Most takeovers of companies are agreed by their respective boards of directors. A company will typically make an offer for all of the shares of another company, and ask its directors to recommend the offer to their shareholders. If the directors recommend the offer, and the shareholders agree with the price, the takeover will go ahead.

However, sometimes a company’s directors may feel that a takeover bid undervalues the shares, and so do not recommend the offer to shareholders. The bidding company could always drop the bid and walk away. But if it wants to press on, it can instead approach the shareholders directly and offer to buy their shares.

If the bidding company can buy up a controlling stake in the target company, it can then force the remaining shareholders to sell up, and thus take over the whole company.

The target company will often try to defend itself by promising to make shareholders better off with a new strategy. Very occasionally, it even tries to buy the bidding company – this is known as a ‘pac-man’ defence.

Merryn

Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.