In the Corporate world, the management gears up to take control of the rights to own assets as well as liabilities of other companies by adopting strategic plans. In this section, details of hostile takeover and friendly takeover have been provided.
Whenever a company contemplates of taking control of the assets and liabilities of another firm, it may do so by the process of a takeover. Prior to the initiation of a takeover, a tender offer is put forward.
In the event when the offer is approved by the Board of Directors (Board), the process of takeover commences. There may be two instances when a takeover takes place.
The guiding principle behind a hostile takeover and friendly takeover differs. In both the cases, the role of the Board of Directors is a deciding factor.
It is obligatory to keep the SEC or the Securities And Exchange Commission informed in the event when the acquiring company wishes to acquire more than 5% of the shares of the target firm.
Role of the Board of Directors in case of hostile takeover:
When the tender offer is placed before the Board, the Board evaluates the same to see if it will be advantageous for the shareholders or will go against them. Decision is not only taken keeping in mind the interests of the shareholders but other areas are also scanned through. If the Board feels that the tender is not agreeable, it turns down the offer. If this sort of reciprocation is not agreed upon by the management team of the acquiring company and they wish to continue with the same, this takeover takes the nature of hostility and hence a hostile takeover. There is another condition, which fulfills the criteria of a hostile takeover. If the management team of the acquiring company does not inform the Board at all.
Strategies to ward off hostile takeover:
Several strategies are embraced by that company, which is being planned to be taken over. Tools pertaining to resisting hostile takeovers include the following, although the number far exceeds the ones mentioned here:
- Poison pill
- People pill
- Golden parachute
- Pension parachute
- White knight
- Saturday night special
- Macaroni defense
Role of the Board in case of friendly takeover:
In case of a friendly takeovers, the Board approves of the offer put forward by the acquiring firm. Both the companies, the one being taken over and the one which is taking over see each others interests and agree to merge. This sort of merger is expected to increase the productivity of the newly formed company and have several added features by the amalgamation of the specialties of both the merging companies.