Hostile Bid

Hostile Bid

A hostile bid is a specific type of takeover bid that bidders present directly to the target firm's shareholders because the management is not in favor of the deal. A hostile bid can spark a poxy battle in some cases, where the acquiring company looks to replace the management of the target company. A hostile bid is a specific type of takeover bid that bidders present directly to the target firm's shareholders because the management is not in favor of the deal. On the flip side, a company undertaking a hostile takeover may have to do so with little internal information about the company as the management has been unwelcoming. The U.K. has specific rules for hostile takeovers, and as soon as news of EchoStar Corp.’s approach was released in May 2018, this triggered a 28-day deadline for the company to make a final offer or walk away from the deal.

Hostile bids are takeover offers taken directly to shareholders because management has rejected the offer.

What Is a Hostile Bid?

A hostile bid is a specific type of takeover bid that bidders present directly to the target firm's shareholders because the management is not in favor of the deal. Bidders generally present their hostile bids through a tender offer. In this scenario, the acquiring company offers to purchase the common shares of the target at a substantial premium.

Hostile bids are takeover offers taken directly to shareholders because management has rejected the offer.
A hostile bid can spark a poxy battle in some cases, where the acquiring company looks to replace the management of the target company.
A friendly bid is the opposite of a hostile bid, where management accepts a takeover offer.

Understanding Hostile Bids

Hostile bids can lead to major changes in the organizational structure. If a board pursues defensive action to stop the merger, a proxy fight can occur. In this scenario, the acquirer will often attempt to convince the target shareholders to replace management. Certain investors, such as activist investors, are known for using hostile bids to force takeovers and buyouts. For example, activist investor Carl Ichan made several hostile bids for Clorox in 2011.

Soliciting Shareholders

The acquirer and the target company use a variety of solicitation methods to influence shareholder votes. Shareholders receive a Schedule 14A with financial and other information on the target company and the terms of the proposed acquisition. In many cases, the acquiring company hires an outside proxy solicitation firm that compiles a list of shareholders and contacts them to state the acquirer's case.

The firm can call or provide written information, detailing the reasons the acquirer is attempting to make fundamental changes and why the deal could create more shareholder wealth in the long-term.

Individual shareholders or stock brokerages submit their votes to the entity assigned to aggregate the information (e.g., a stock transfer agent or brokerage). The corporate secretary of the target company receives all votes before the shareholders' meeting. Proxy solicitors may scrutinize and challenge the votes if they are unclear.

Hostile Bid vs. Friendly Bid

Unlike a hostile bid, a friendly bid is approved by management. An offer that's accepted by management and the board of directors is considered a friendly bid, as things are amicable. In this case, the acquiring company generally has more access to the company and relevant information. On the flip side, a company undertaking a hostile takeover may have to do so with little internal information about the company as the management has been unwelcoming.

Example of a Hostile Bid

A recent example of a hostile bid is EchoStar Corp.’s pursuit of Inmarsat Plc., a London-based satellite operator. The U.K. has specific rules for hostile takeovers, and as soon as news of EchoStar Corp.’s approach was released in May 2018, this triggered a 28-day deadline for the company to make a final offer or walk away from the deal.

In a shortened time frame, EchoStar announced its offer of 2.45 billion pounds ($3.2 billion), half in cash and half in EchoStar stock; however, Inmarsat’s board rejected it. The rejection was largely due to the low (27%) premium EchoStar offered on its share price.

Related terms:

Accounting

Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business to oversight agencies, regulators, and the IRS. read more

Acquirer

An acquirer is a company that acquires rights to another company or business relationship through a deal. read more

Friendly Takeover

A friendly takeover occurs when a target company's management and board of directors agree to a merger or acquisition proposal by another company. read more

Gray Knight

A gray knight is a friendlier alternative to a hostile black knight in corporate takeover situations where a white knight cannot make a deal. read more

Hostile Takeover Bid

A hostile takeover bid is an attempt to buy a controlling stake in a publicly-traded company without the consent of its management. read more

Hostile Takeover

A hostile takeover is the acquisition of one company by another without approval from the target company's management. read more

Premium

Premium is the total cost of an option or the difference between the higher price paid for a fixed-income security and the security's face amount at issue. read more

Proxy Fight

A proxy fight occurs when a group of shareholders join forces and gather enough shareholder proxy votes in order to win a corporate vote. read more

Scorched Earth Policy

A scorched earth policy is a strategy designed to deter a hostile takeover by making the target company unattractive to the potential acquirer. read more

SEC Form DEF 14A

SEC Form DEF 14A is a form that must be filed by or on behalf of a registrant when a shareholder vote is required.  read more