Mergers & Acquisitions: Hostile takeovers and defense strategies against them

Abstract

Mergers and acquisitions is a way for companies to grow, establish and gain entry to new markets. They can be categorized as either friendly or hostile. A hostile takeover occurs when a company gains control over a targeted company without the consent from either the board of directors or the management of the target company. Instead the aim of the acquirer is to persuade and charm the shareholders of the targeted company to sell their stock. Since every publicly listed company faces the risk of being a target for a hostile takeover, many companies protect themselves by implementing various defense measurements and strategies. These strategies could be either pro-active, such as the poison pill and staggered board defense strategy or re-active, such as the crown jewel and white knight defense strategy. The purpose of this thesis is to describe and explain which defense strategies are the most effective and easiest to implement when facing a hostile takeover. Based on our researches and analyzes, we believe and argue that the most easiest and effective way of fending off a hostile bid, is to implement both the poison pill and staggered board defense measurements combined. By doing this, the acquirer is not able to gain immediate control over the target company and the poison pill defense measurement help stagger and make the bid more expensive for the bidder.