Hostile Bid: What It Is, Example

Learn about hostile bids, an approach where one company attempts to acquire another without the target company's consent. Hostile bids are often aggressive and involve direct approaches to shareholders, bypassing the target company's management. This approach carries significant risks and challenges for both parties involved. In this article, we will explore how hostile bids work, the different types of hostile takeovers, and real-world examples to provide a deeper understanding of this acquisition strategy.

A hostile bid occurs when a company attempts to acquire another company without the approval or consent of the target company’s management. The bidder directly approaches the target’s shareholders, bypassing the board of directors. Hostile bids are typically used when the target company’s management rejects the offer or fails to engage in negotiations.

A hostile bid is initiated when a company (the acquirer) offers to purchase a controlling stake in another company (the target) against the wishes of the target’s management. The acquirer may approach the target’s shareholders directly or use other tactics, such as a tender offer, to gain control. For example, if Company A wants to acquire Company B, but Company B’s management opposes it, Company A might offer to buy shares from Company B’s shareholders to gain control of the company.

 Hostile bids carry significant risks and challenges for both the acquirer and the target:

• For the acquirer: The risk of paying a premium for shares, facing resistance from target management, and dealing with potential shareholder opposition.
  

• For the target: The challenge of defending against the bid often involves defensive measures such as poison pills or soliciting alternative buyers. There’s also the risk of shareholder pressure to accept the bid if it's financially beneficial.

Hostile bids have occurred in numerous global and India-specific cases. One prominent example is when Kraft Foods made a hostile bid for Cadbury in 2009. In India, the 2017 hostile bid by Vedanta Resources to acquire the remaining stake in Cairn India is another example where the management and stakeholders had to assess the offer closely.

 There are several common types of hostile takeovers:

• Tender offer: The acquirer directly offers to buy shares from the target’s shareholders at a premium price.
  

• Proxy fight: The acquirer tries to gain control by persuading shareholders to vote out the current management and replace them with those more favourable to the acquisition.
  

• Creeping acquisition: The acquirer buys a small percentage of the target company’s shares over time to gain control gradually.

Hostile bids are aggressive acquisition approach that can create significant challenges for both the acquirer and the target company. Understanding the types, risks, and examples of hostile bids provides clarity on how to navigate such complex situations.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.