Hostile takeover

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 can instead approach the shareholders directly.

Most takeovers of companies are agreed by their respectiveboards of directors. A company will typically make an offerfor all of the shares of another company, and ask its directorsto recommend the offer to their shareholders. If the directorsrecommend the offer, and the shareholders agree with theprice, the takeover will go ahead.

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

If thebidding company can buy up a controlling stake in the targetcompany, it can then force the remaining shareholders tosell up, and thus take over the whole company.

The targetcompany will often try to defend itself by promising to makeshareholders better off with a new strategy. Very occasionally,it even tries to buy the bidding company this is known as apac-man' defence.

Most Popular

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks
European stockmarkets

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks

Ray Dalio’s Bridgewater hedge fund is putting its money on a collapse in European stocks. It’s likely to pay off, says Matthew Lynn.
3 Jul 2022
UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022
Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022