The term takeover is not defined in the Companies Act, 2013. Takeover is a process of acquisition of shares carrying voting rights in a company with an objective to gain control over the management of the company. It is done by acquiring the control over the assets of the company either by acquiring majority shares of the company or by obtaining control of the management of the business by an individual, group of individuals or by a company. This guide will delve into the nature of takeovers, specifically focusing on hostile takeovers, and will discuss whether preventing them is feasible or just a theoretical concept.
There are three kinds of takeovers:
- Friendly Takeover
- Hostile Takeover
- Bailout Takeover
Friendly takeover is done with the consent of the target company. In friendly takeover there is a formal agreement between the management of two companies through negotiation. Both the parties voluntarily agrees for the takeover and they go through certain negotiations. Hence this type of takeover is also known as Negotiation takeover.
Hostile takeover is such a method in which the target company does not wish to sell its stake but by doing the market actions the acquirer company acquires the stake in Target Company. Here the acquirer does not offer proposal to the target company to acquire its undertaking but silently and unilaterally pursues efforts to gain control against the wishes of existing management of the company, such actions of acquirer is known as hostile takeover.
Bailout takeover means when a financially sick company is acquired by the profit making company with an objective to bail out the former from suffering losses is known as bailout takeover. A bail out takeover is done with the approval of banks and financial institutions, since the objective is to revive the financially weak company.
Various defensive strategies are mentioned to prevent the hostile takeover. But can we implement those strategies practically in the real corporate scenario? Let’s talk about this.
- Crown Jewel Strategy:
The acquirer company acquires the target company because he has saw something unique attraction in the assets of the company, that asset is the crown jewel of the target company. Now to prevent from hostile takeover, the target company can sold this crown jewel or the main attraction for which the raider company wants to acquire the stake in the target company.
- The Packman Defense:
In this the target company attempts to purchase the shares of the raider company. The idea is to increase the stake in the raider company so that the raider company fails to gain control over the target company. But practically this is not possible.
- Buy Back:
This is the strategy where the management buy back its shares and disposes off the same. In this scenario, on the one hand the management increases its holding and on the other hand dispose of some of the assets to make the target company unattractive to the raider.
Conclusion:
Hostile takeovers, though fascinating in theory, present a complex, multifaceted challenge in practice. Various defensive strategies can theoretically prevent hostile takeovers, but real-world legal restrictions often make them impractical. Therefore the only method to prevent such hostile takeover is to sustain maximum control in the hands of promoters or the management of the company.
The information provided in this guide offers insight into the corporate reality of takeovers, emphasizing that prevention of hostile takeovers often boils down to the control sustained by a company’s management. By understanding these intricacies, stakeholders can make informed decisions in the fast-paced world of corporate acquisitions.
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