What Is a Hostile Bid?
Let me explain what a hostile bid really is. It's a type of takeover bid where the bidder goes straight to the target company's shareholders because the management isn't on board with the deal. You'll see these bids often come in the form of a tender offer, where the acquiring company proposes to buy the target's common shares at a hefty premium.
Understanding Hostile Bids
You should know that hostile bids can shake up a company's structure in big ways. If the target's board tries to block the merger with defensive moves, it might lead to a proxy fight. Here, the acquirer could push to convince shareholders to oust the current management. I've seen how certain players, like activist investors, thrive on this approach to force takeovers and buyouts. Take Carl Icahn, for instance—he launched several hostile bids for Clorox back in 2011.
Soliciting Shareholders
When it comes to influencing votes, both the acquirer and the target use various methods to sway shareholders. You'll get a Schedule 14A form that includes financial details on the target and the acquisition terms. Often, the acquiring company brings in an outside proxy solicitation firm to list shareholders and reach out to them, either by call or written info. They lay out why the changes are needed and how the deal could boost long-term shareholder value. Votes from individual shareholders or brokerages go to an aggregator like a stock transfer agent, and the target's corporate secretary collects them before the meeting. If votes are murky, proxy solicitors might challenge them.
Hostile Bid vs. Friendly Bid
Contrast this with a friendly bid, which gets the green light from management. When the board and execs are on board, it's all amicable, and the acquirer gets better access to internal info. But in a hostile scenario, you're dealing with resistance, so the bidder might have to proceed with scant details about the company.
Example of a Hostile Bid
Consider the case from October 2010, when French pharma giant Sanofi-Aventis offered $69 per share to Genzyme's shareholders after management kept turning them down. Sanofi's CEO even wrote to Genzyme's chief, claiming support from over 50% of shareholders. The offer ran until December 2010, but as predicted, most saw it as too low and it flopped. Eventually, in February 2011, Genzyme's board agreed to $74 per share plus contingent value rights linked to their MS drug Lemtrada's performance.
Key Takeaways
- Hostile bids go directly to shareholders after management rejects the offer.
- They can lead to proxy battles aimed at replacing the target's management.
- Friendly bids, in contrast, have management's approval and more info access.
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