In hostile acquisitions the board of management is not agree with the acquisition. In this sense, negotiation is between the board of management of the acquiring company and the shareholders of the target company. Sometimes acquisitions start being hostile and at the end turn into friendly. In hostile takeovers, the interest in buying the company should be unknown by the market before the announcement. Otherwise, if the market would anticipate the interest in the company, it price will rise before the announcement, making more expensive the acquisition or even impossible.
A dividend in the form of convertible preferred shares or similar is issued and directed to the owners of the target company.
Preferred shared have special conversion features which let them transform into company shares when the attacker has taken control. This will reduce its strength in the company.
Obligation in the company bylaws that if the company changes owners, the new owners must repay all the company debt in a time period usually of three months.
The target company sells most of its assets to make the aggressor lose interest in the acquisition.
The most interesting assets are sold, to make the aggressor lose interest in the company.
Fat Man Strategy.
Unnecessary assets are acquired by the target company to look less attractive to aggressor. Of course it affects short-term profits and increase debt so one must be extremely careful to do it.
Auto tender offer.
Own shares are purchased to avoid the aggressor achieve the control of the company.
Greenmail is a process in which a large number of a target company’s shares are bought by a buyer who threatens a hostile takeover to force the target company to buy back their shares at a higher price.
A standstill agreement is a contract to stop the process of a hostile takeover for a limited time.
In this time, both companies negotiated, an usually target company offers re-buying the acquiring company shares at a higher price or any other solution.
It is also a way to obtain time to find solutions and design preventive measures against other possible takeovers.
A defensive tactic used by a targeted firm in a hostile takeover situation.
In a Pac-Man defense, the target firm turns around and tries to acquire the other company that has made the hostile takeover attempt.
A target corporation in a hostile takeover sometimes seeks out a white knight who comes to the rescue by making an offer to acquire the target company in a friendly takeover that suits the needs and objectives of the target’s management and board.
The hostile acquirer is called a black knight.
Sometimes, the white knight is just trying to gain target company’s trust, and when it achieved it turns around and joins with the unfriendly bidders. This is called Lady Macbeth Strategy in honor to the famous Shakespeare’s characters.
The white squire is similar to the white knight, the main different is that the white squire does not purchase an amount of shares to look for the majority, but a smaller amount.
An offer made by one company to buy the shares of another for a much higher per-share price than what that company is worth. Such a high offer is usually made when it is not clear than the target company’s management is interesting in selling. The generous offer just try to persuade them to let the acquisition.
It is considered a hostile technique because the managers use to fell force to let it, considering that they are supposed to look after shareholders interests.
A corporate raider is an investor who buys a large number of shares in a corporation whose assets appear to be undervalued. This purchase would give the corporate raider significant voting rights, which could then be used to change the company’s leadership and management with the intention of increasing the share value and obtaining a large return.
There are several strategies to thwart the efforts of corporate raiders, like poison pills, greenmail or a strategic merger with a white knight.