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What is a Hostile Takeover?

Hostile takeovers often begin with a sudden or surreptitious purchasing of a target company's stock.
The governing board of a targeted company may decide to fight a takeover by having their business deliberately take on liabilities.
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  • Written By: Mary McMahon
  • Edited By: Bronwyn Harris
  • Last Modified Date: 05 November 2014
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A hostile takeover is a type of corporate takeover which is carried out against the wishes of the board of the target company. This unique type of acquisition does not occur nearly as frequently as friendly takeovers, in which the two companies work together because the takeover is perceived as beneficial. Hostile takeovers can be traumatic for the target company, and they can also be risky for the other side, as the acquiring company may not be able to obtain certain relevant information about the target company.

Companies are bought and sold on a daily basis. There are two types of sale agreements. In the first, a merger, two companies come together, blending their assets, staff, facilities, and so forth. After a merger, the original companies cease to exist, and a new company arises instead. In a takeover, a company is purchased by another company. The purchasing company owns all of the target company's assets including company patents, trademarks, and so forth. The original company may be entirely swallowed up, or may operate semi-independently under the umbrella of the acquiring company.

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Typically, a company which wishes to acquire another company approaches the target company's board with an offer. The board members consider the offer, and then choose to accept or reject it. The offer will be accepted if the board believes that it will promote the long term welfare of the company, and it will be rejected if the board dislike the terms or it feels that a takeover would not be beneficial. When a company pursues takeover after rejection by a board, it is a hostile takeover. If a company bypasses the board entirely, it is also termed a hostile takeover.

Publicly traded companies are at risk of hostile takeover because opposing companies can purchase large amounts of their stock to gain a controlling share. In this instance, the company does not have to respect the feelings of the board because it already essentially owns and controls the firm. A hostile takeover may also involve tactics like trying to sweeten the deal for individual board members to get them to agree.

An acquiring firm takes a risk by attempting a hostile takeover. Because the target firm is not cooperating, the acquiring firm may unwittingly take on debts or serious problems, since it does not have access to all of the information about the company. Many firms also have trouble getting financing for hostile takeovers, since some banks are reluctant to lend in these situations.

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anon301815
Post 5

An example of a recent hostile attempts is Carl Ichan of Netflix.

anon141277
Post 4

what are the examples (recent) of such takeovers?

anon76781
Post 3

can somebody give me a general time table that this process may happen?

Raghuvanshi
Post 1

Hostile takeover has the interplay between white knight, black knight and gray knight.

Tactics such as greenmailing can be used by the corporate raider.

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