Finance: What is a Hostile Takeover?

What is a Hostile Takeover? A hostile takeover happens when a buyer goes past the management of a company to acquire it. The company’s management does not agree with the deal so the buyer goes past them and goes straight to the shareholders with the plan of taking over and replacing all upper-level management.

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Transcript

00:25

then 80 and then 72, 53, 45 and 33 have written

00:29

reams of complaint letters to the board who just doesn't seem to listen to what [Man angrily typing complaint on keyboard]

00:33

is an obvious fix well they have to fire the CEO and put someone in power who

00:38

will you know stop the bleeding but they won't for whatever reason the board is

00:43

remaining loyal to the CEO so now these angry shareholders and yes they are

00:48

hostile well, they get together and openly try to buy the company under a

00:53

process where they buy off as many shares as they can common shares they

00:58

team up among themselves yeah and then finally when they have a majority

01:02

ownership in the company or at least enough to sway the vote they start [Pie chart appears with hostile shareholders]

01:06

electing new board members with their common share votes

01:10

you know board members who actually listen to them remember that it's the

01:14

common shareholders who elect the board here people then the board hires the CEO

01:18

who hires well pretty much everyone else and hostile takeovers still happen these

01:23

days or at least get threatened here's one of the juicier ones and arguably one

01:27

of the worst wealth destroying deal passes in history when Microsoft tried to

01:31

go hostile and by Yahoo in 2008 and the board didn't listen and while they ended [Man with microsoft briefcase for head giving presentation]

01:37

up selling for less and so here's kind of the letter yeah you can kind of skim

01:55

So went on and on Yahoo past and while bad things [Microsoft merge failure newspaper article appears]

01:59

happened so hostile takeovers do they happen to well-run good companies who

02:03

were doing well? well generally no they're only bad for poorly run

02:08

companies and actually good for the shareholders because hostile takeovers

02:11

usually mean the share appreciates in value

02:13

and so then the common shareholders who actually own the company well at least

02:17

they eventually get paid at least something closer to a fair price so yeah

02:21

the best way to avoid a hostile takeover well as always to plug the leak before [CEO plugs in nose plugs]

02:25

it you know gets to be a problem