Hostile Takeovers and Forced Acquisitions: The Ugly Side of the Corporate World

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In November last year, Xerox started its hostile takeover bid to buy rival HP. There was a swift reply from HP, terming the move by Xerox as “uncertain” and “highly conditional.” It was based on the fact that Xerox is a smaller company when compared to HP in terms of market capitalization and the number of companies under their umbrella. In the same month, Xerox issued a public letter stating that its intent to buy HP through hostile takeover is a mature and serious offer.

HP formally rejected an offer of a $24/share buyout offer by Xerox on March 5, 2020. And Xerox also postponed its bid also due to the prevailing market situation, chiefly because of ongoing Coronavirus. There are several aspects you need to know about if you don’t know what a hostile takeover is, what its implications are, and how companies can go for or defend such a bid.

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Hostile Takeover: The Basics

A company involved in a hostile takeover bid tries to target a company in an attempt to overtake its management, in spite of that company not willing to approve such a move. There are several ways in which this can be done. One way to do this is by contacting the shareholders of a company and buy the shares from them to get the majority shares. This will automatically make you the single largest shareholder and hand you the controlling rights to call the board meeting and finalize the transaction.

While legal, the word hostile says it all as it is against the wishes of the target company. That’s why it is not deemed an ethical practice, although dozens of such takeovers are finalized each year. It is in sharp contrast to acquisition where the company being purchased is willing to sell itself. And then there is a merger where two or more companies are merged to create a new company or merged into an already established one.

Why Is It an Interesting Topic to Study More?

If you go through the case studies of leading and most valued mergers and acquisitions around the world, you will be fascinated by this. While power, greed, and bid to get the controlling rights of a company looks obvious, there are other factors, too, for which a company may seem to take the managing control of a firm through force.

First, let’s check out some interesting trivia and recent history of takeovers and forced acquisitions.

One of the biggest hostile takeovers in history was AOL’s takeover of Time Warner, valued at USD 164 billion in 2000. Hailed as a ground-breaking deal, after the dot com bubble burst, the newly crowned largest media company in the world went bankrupt very quickly. It lost over USD 200 billion as a result and is probably the biggest failure in terms of cash involved.

What’s in It for Businesses around the World?

Big conglomerates and companies having excess money at hand try to take over a company that looks promising. They even try to buy out big rival firms to kill the competition. Xerox vs HP is a prime example. Facebook acquired WhatsApp and Instagram through mutual consent but is seen as a way to kill the competition as it has created a media empire that has swelled manifold.

Microsoft, during the ’90s and early 2000s, snapped up dozens of companies through hostile takeovers or acquisitions, which remotely looked like a danger to any of the products or services it produced. Even the acquisitions were kind of hostile as Microsoft left no way for several companies like Visio Corporation in 2000 and Navision in 2002, both acquisitions turned out to be quite beneficial for the software giant.

Microsoft also made several significant acquisitions worth over one billion dollars like Skype in 2011, LinkedIn in 2016, and GitHub in 2018. But it went all out to buy Yahoo in 2008 in one of the biggest hostile takeover bids in history, which turned ugly as Microsoft tried every trick in the book to make it happen. Although the bid went unsuccessful, it clearly showed how far companies go to achieve their goals, by hook or by crook.

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In the Wake of a Slow Economy, will Hostile Takeovers be a Norm?

Mergers and acquisitions are the most likely outcome as scores of companies will go bankrupt, and big daddies in the business will be licking their lips to buy them (that came out wrong). And the companies who would resist such moves will face hostile takeovers for sure. Also, termed as a sluggish economy, it has far-reaching impacts on the lives of people in the form of a decrease in living standards as inequality slowly takes over.

Big businesses and multinational companies also face the cash crunch, but they are too big to feel the brunt of the situation in mere 4-6 months. On the other hand, small businesses and startups are the ones hurt the most as they have no option but to merge or get acquired by a company to sustain themselves in the market.

Final Word

Hostile takeovers are going to continue, as I have clearly described the reasons and scenarios behind it. What businesses need to look at is how and why such takeovers may take place and don’t try to annihilate small companies just for the sake of growing their portfolio.

Small businesses and startups can avoid such hostile takeovers by building their business so that they are valued high. And any company or business entity would think twice before acquiring them, even through force.

I am sure that some of my readers would like to share their bit for this blog. Or a few of you would like a clarification about an aspect. Either way, you are more than welcome. Please speak up and use the comments section below, and I will get back to you at my earliest.

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