A takeover bid is an offer to purchase enough shares of a company to overtake the current majority shareholder. There are a variety of different takeover bid strategies, including friendly, hostile, and two-tier. High profile takeover offers almost always result in a temporary flux in the stock market, which may go up or down depending on public and market opinion of the takeover bid.
In a friendly takeover, the bidding company or individuals inform the board of directors of the target company. Depending on the offer made, the directors then recommend to stockholders whether to accept or reject the takeover bid. In small companies, it is easier to approve a friendly takeover, as the board of directors often makes up the majority shareholders. However, if the board feels it is not in the interest of the company to accept the terms, they may reject the takeover bid, which sets the stage for a hostile takeover of the target company.
Takeover bids may begin hostile or become hostile, depending on the strategy of the bidders. If a bidding company attempts to buy the majority shares without informing the board of directors first, this is considered a hostile maneuver. Likewise, if the board rejects the friendly takeover offer, the bidder may choose to continue pursuing shareholders without the input of the board of directors.
Hostile takeovers may be conducted in a variety of ways, nearly always ending in disaster for the current board of directors if the acquiring party is successful. The bidding company may attempt to influence shareholders to vote out the board of directors in the interest of the company, using a tactic called proxy fighting. They may also simply buy all the shares available on the market to gain influence in changing the board to takeover-supporting members. In a tender offer, the bidder may offer to pay a fixed price above the market value for the shares, which the board may be forced to accept.
There are a variety of methods that exist to help the target corporation avoid hostile takeover, but these carry their own huge risks. In a white or grey knight defense, the target company enlists the help of another corporation to bail them out, sometimes by offering them incredible concessions in return for buying enough stock to stalemate the takeover bidder. Other tactics, called Jonestown, suicide, or poison pill defenses, involve taking on large amounts of debt or diluting share value in order to make the target company less attractive to bidders.
In 2008 amid a media frenzy, Microsoft offered a $46.6 billion US Dollar bid to take over the internet company Yahoo. What would have been the largest takeover in Microsoft’s history was allowed to fizzle out after repeated attempts at a hostile takeover were rejected by the Yahoo board of directors. Once it became clear that Microsoft would have to lay out considerably more money than they initially intended, the offer was dropped. Industry analysts suggest that this takeover would have been bad for both companies, and resulted in a 15% loss of jobs for Yahoo employees.
For the consumer, the concern with takeover bids is that there are fewer choices available on the market, often resulting in rising prices and lower competition. For workers at a successfully targeted company, new management can often lead to job losses and serious upset to the established chain of command. Generally, a takeover bid is seen as good for the corporation, bad for the consumer and the lower-level workers. Critics also see a takeover bid as a slippery slope that can lead to violating anti-trust laws, and in need of serious legal parameters.