Hostile Takeover

A hostile bid begins when an acquirer's friendly overtures are rejected by the target board. The acquirer then has two main routes. First, a tender offer: the acquirer offers to buy shares directly from shareholders at a premium to market, conditioned on enough shares being tendered to gain control (often a majority). Second, a proxy fight (proxy contest): the acquirer solicits votes from existing shareholders to replace the board with directors who will approve the deal or dismantle defenses. Often the two are combined — a tender offer paired with a proxy campaign. A precursor step is the toehold, where the acquirer quietly accumulates a stake (up to 5% before SEC Schedule 13D disclosure is triggered) to build leverage and economics before going public with the bid.

Acquirers go hostile when they believe the target is worth more than current management is delivering, when the board is protecting its own jobs rather than maximizing shareholder value, or when the strategic logic is so compelling that they're willing to fight. The downside: hostile deals are more expensive (bigger premium), riskier (the target can deploy defenses), and can poison post-close integration because key management and talent may leave. Many hostile bids are 'bear hugs' first — a public letter to the board offering a generous premium, designed to pressure the board into negotiating by exposing them to shareholder lawsuits if they reject an obviously attractive price.

Targets fight back with structural and tactical defenses. The strongest structural defense is the poison pill (shareholder rights plan), which massively dilutes a hostile acquirer once it crosses an ownership threshold. Others include a staggered (classified) board so only a third of directors are up for election each year (slowing a proxy fight to multiple years), the white knight (finding a friendlier rival bidder), the white squire (selling a blocking minority stake to a friendly investor), the Pac-Man defense (the target turns around and bids for the acquirer), the crown jewel defense (selling off the most valuable assets the acquirer wants), and golden parachutes (rich executive severance that raises the cost of a takeover). Many of these were sharpened during the 1980s LBO and corporate-raider era.