How to Prevent a Hostile Takeover
How to Prevent a Hostile Takeover is discussed in this article. You will find these guides helpful and informative.
How to deal with Hostile Takeover
In the capital markets, a hostile takeover is a state in which acquisitions and transactions are carried out in the company without the knowledge of the company authorities.
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In any company, before the stock is bought or sold, this transaction is clearly monitored by several agents and an approved board of directors but when this process is extorted, this is referred to as a hostile takeover.
The process of a hostile takeover can negatively affect the growth of the company as shares are transferred and sold at a usual price. Most times the price can be negotiated greater than the market to attract a marginal benefit.
Thus, with the use of hostile takeovers staff can vehemently and convincingly control the organization deprived of the permission of the board of directions.
Thus, this is effective for every business and company to have key facts about this concept and set measures to prevent a hostile takeover.
Heads of companies often deliberate on the causes of hostile takeover in order to set measures for its prevention. A hostile takeover can occur due to the following rationales.
When there is the dispersion of shares by one person or with; the domination of a single such as a private shareholder, it leads to a hostile takeover.
Poor management which leads to its disorganization can cause a hostile takeover. Also, the undervaluation of share price for the benefit of certain cabinet shareholders and debt.
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A hostile takeover can occur even in government establishments due to liberal government policy affecting procedures of capital strength.
Every establishment has a guiding principle of maximizing profit, but hostile takeover discords the process. Thus in order to prevent it is simply purchasing all the company and government shares from private and single and unrelated shareholders to avoid these distinct issues.
Once, records reveal that the organization has been badly maintained, or the takeover has an intention of offering shares, it is an indication that the takeover is a threat to the establishment, especially with a scheming interest of about 50% to 62% of the total shares.
Hostile Takeover can be prevented using the position approach. The company should ensure that persons occurring in highly placed positions do not exceed one or two years in such esteeming positions to prevent a hostile takeover.
The company should it plain to the shareholders about the actions or intending actions that reveal the defensive threats of a hostile takeover.
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Also, the company can establish seminars to kick against a hostile takeover especially if such a takeover has an intention of buying out a greater percentage of the shares and gaining power over the affairs of the company.
Use the Poison pill strategy which was developed in the 1980s in America. This strategy entails that if the hostile takeover gains control then incurring the company should incur huge debts coupled with a huge rate of interest attached with the condition that such debts must be made instantly by the takeover. This is also called a golden parachute.
Research shows that this practice was applied in the American market in that era, such companies were slurred by the court and considered invalid to the detriment of the hostile takeover.
In today’s business world, poison pill strategies are still used by most developing economies but it not operational in developing countries.
Use the white knight strategy: The term white knight strategy is named after a company popularly called “White knight”.
This company laid assistance to another company to purchase its shares without any defensive intention of overthrowing its board of directors.
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White knight made this deal with the contract of purchasing shares is made with the consent of the board of the acquired company on auspicious conditions thereby making a hostile takeover not conceivable.
Studies have shown cases of hostile’s takeovers in various companies around the world. Krupp-Hoesch and Thyssen-merger had moderated the market between German companies Krupp-Hoesch and Thyssen demonstrated an effort of hostile takeover in 1997.
Krupp-Hoesch publicized its aim to take over Thyssen Company which happen to have a huge and more lucrative profit merger than Krupp-Hoesch.
Conclusively, it is obvious that companies that experience hostile takeovers are considered feeble and are dominated by strong companies.
Thus every company should primarily build its capacity and restructure its policies to strengthen its business base. Use measures such as a Staggered Board where a shareholder is chosen only with the support of other shareholders.
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Use poison by making it only likely for the company to issue favorable shares only to existing shareholders who have the right to purchase them. Use Golden Parachutes strategy with lucrative and expensive packages.