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.