what is a hostile takeover 
a hostile takeover happens when an entity takes control of a company without the knowledge and against the wishes of the company s management a hostile takeover is an acquisition strategy requiring that the entity acquire and control more than 50 of the voting shares issued by the company it is considered bad business etiquette investopedia matthew collinsunderstanding hostile takeoversa hostile takeover allows the new majority shareholder s to control the acquired business the company being acquired in a hostile takeover is called the target company while the one executing the takeover is called the acquirer reasons that hostile takeovers occur from the acquiring party s point of view often coincide with those of any other acquisition or merger such as hostile takeovers are generally initiated in two ways the williams act of 1968 regulates tender offers and requires the disclosure of all cash tender offers 1defendes against a hostile takeoverto deter unwanted takeovers companies may have preemptive defenses or employ reactive defenses to fight back some of these defenses are to protect against hostile takeovers a company can establish stock with differential voting rights dvrs where some shares carry greater voting power than others this can make it more difficult to generate the votes needed for a hostile takeover if management owns a large enough portion of shares with more voting power shares with less voting power can also pay a higher dividend making them more attractive investments establishing an employee stock ownership program esop involves using a tax qualified plan in which employees own a substantial interest in the company employees may be more likely to vote with management as such this can be a successful defense however such schemes have drawn scrutiny in the past in some cases courts have invalidated defensive esops on the grounds that the plan was established for the benefit of management not shareholders 2in a crown jewel defense a provision of the company s bylaws requires the sale of the most valuable assets if there is a hostile takeover thereby making it less attractive as a takeover opportunity this is often considered one of the last lines of defense this defense tactic is officially known as a shareholder rights plan it allows existing shareholders to buy newly issued stock at a discount if one shareholder has bought more than a stipulated percentage of the stock resulting in a dilution of the ownership interest of the acquiring company the buyer who triggered the defense usually the acquiring company is excluded from the discount there are two types of poison pill defenses the flip in and flip over a flip in allows existing shareholders to buy new stock at a discount if someone accumulates a specified number of shares of the target company the acquiring company is excluded from the sale and its ownership interest becomes diluted a flip over strategy allows the target company s shareholders to purchase the acquiring company s stock at a deeply discounted price if the takeover goes through which punishes the acquiring company by diluting its equity the term poison pill is often used broadly to include a range of defenses including issuing additional debt which aims to make the target less attractive and stock options to employees that vest upon a merger sometimes a company s management will defend against unwanted hostile takeovers by using several controversial strategies such as the people poison pill a golden parachute or the pac man defense a people poison pill provides for the resignation of key personnel in the case of a hostile takeover while the golden parachute involves granting members of the target s executive team benefits bonuses severance pay stock options among others if they are ever terminated as a result of a takeover the pac man defense has the target company aggressively buy stock in the company attempting the takeover hostile takeover examplesa hostile takeover can be a difficult and lengthy process and attempts often end up unsuccessful for example billionaire activist investor carl icahn attempted three separate bids to acquire household goods giant clorox in 2011 which rejected each one and introduced a new shareholder rights plan in its defense 3 the clorox board even sidelined icahn s proxy fight efforts and the attempt ultimately ended in a few months with no takeover an example of a successful hostile takeover is that of pharmaceutical company sanofi s sny acquisition of genzyme genzyme produced drugs for the treatment of rare genetic disorders and sanofi saw the company as a means to expand into a niche industry and broaden its product offering after friendly takeover offers were unsuccessful as genzyme rebuffed sanofi s advances sanofi went directly to the shareholders paid a premium for the shares added in contingent value rights and ended up acquiring genzyme 4