Similarly, setting up an employee stock ownership program, or ESOP, might help because employees will own a significant share of the company and be more likely to side with the existing leaders than allow for a coup. In this way, a hostile takeover may be heavily discouraged. This makes the stocks all the more alluring to investors and discourages their sale. With DVR stock, having fewer voting rights could mean shareholders get paid a higher dividend. The best method for stopping a hostile takeover is to issue stocks with differential voting rights, or DVR. A flip-over is when shareholders buy the shares of the acquiring group, diluting their equity and therefore their say.Īnother way to stop a hostile takeover is to prevent one in the first place. The former is more common, where shareholders can buy newly-issued stock at a discounted price once a single shareholder reaches a certain volume of shares owned. “Poison pill” defense comes in two different flavors: flip-in and flip-out. The poison pill approach is the most common way to defend from being taken over. In such cases, so-called activist investors may take over the company to try to change its operations. If a company seems to be very undervalued, it might be a target this target becomes more attractive depending on how interested the hostile party is in acquiring the company’s brand or technology.Ī company may also be more vulnerable to a hostile takeover if its operations are in contention with industry best practices or some social justice cause.
The factors that leave a company vulnerable to a hostile takeover might be a bit nuanced in fact, sometimes the board doesn’t even realize a hostile takeover is about to happen until it’s too late. If another entity sets its sights on buying the company and the board of the company is opposed to it, you’ve got the stage set for a potential hostile takeover. Unfortunately (or fortunately, depending on how you look at it) the conditions that make a company vulnerable to a hostile takeover are fairly simple.
What makes a company a hostile takeover target First, let’s review what makes a company susceptible to this sort of takeover in the first place. There have been some famous cases in the news such as when AOL bought Time Warner, Sanofi took over Genzyme, or Vodafone took over Mannesman AG. You may not realize it, but you’ve likely heard of some recent hostile takeovers.
A hostile takeover of a company happens when some entity tries to buy it and take control without the consent of the company’s board or management.
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