when a tender offer is made publicly inviting shareholders to sell their shares at a very favorable price the target s board of directors might have trouble voicing its resistance put it this way if the board doesn t want to sell and snubs the bid shareholders may initiate lawsuits or other forms of revolt against the target company for not performing its fiduciary duty of looking out for shareholders interests 2
most godfather offers are heavy handed do as i say or else is cloaked in an offer a godfather offer is even harder for the target company s board to reject when its stock price has been flat or declining for an extended period of time in such scenarios it is even more likely that long time investors would jump at the opportunity to cash out at an elevated price example of a godfather offercompany a is a promising up and coming developer of new niche technologies its solutions could revolutionize how the world operates leading some larger companies to sniff around and inquire about taking it over company a s board of directors privately rebuffs all proposals claiming it has no interest in selling and handing over all its potential to another firm that strategy helps to keep the predators at bay for a few months until one of them turns hostile company c an industry juggernaut with significant financial resources eventually gets tired of company a s reluctance and responds by tabling a generous godfather offer directly to shareholders a bid of 70 per share is lodged representing a 75 premium on company a s current market price company a s board is livid and maintains it doesn t want to sell at any cost while the shareholders it is elected to represent voice support for the deal and refuse to take no for an answer suddenly things turn messy disgruntled shareholders engage in a proxy fight joining forces in an attempt to seize control and get the takeover approved they also threaten to sue the board for failing to act in their best interests 