Hostile Bid

What Is a Hostile Bid?

A hostile bid is a specific type of takeover bid that bidders present straightforwardly to the target firm's shareholders since management isn't supportive of the deal. Bidders generally present their hostile bids through a tender offer. In this scenario, the obtaining company offers to purchase the common shares of the target at a substantial premium.

Grasping Hostile Bids

Hostile bids can lead to major changes in the organizational structure. On the off chance that a board seeks after defensive action to stop the merger, a proxy fight can happen. In this scenario, the acquirer will frequently endeavor to persuade the target shareholders to supplant management. Certain investors, like activist investors, are known for utilizing hostile bids to force takeovers and buyouts. For instance, activist investor Carl Ichan made several hostile bids for Clorox in 2011.

Requesting Shareholders

The acquirer and the target company utilize an assortment of solicitation methods to influence shareholder votes. Shareholders receive a [Schedule 14A](/sec-structure def-14a) with financial and other data on the target company and the terms of the proposed acquisition. As a rule, the procuring company recruits an outside proxy solicitation firm that orders a rundown of shareholders and reaches them to state the acquirer's case.

The firm can call or give written data, enumerating the reasons the acquirer is endeavoring to roll out fundamental improvements and why the deal could make more shareholder wealth in the long term.

Individual shareholders or stock brokerages present their votes to the entity assigned to aggregate the data (e.g., a stock transfer agent or brokerage). The corporate secretary of the target company receives all votes before the shareholders' meeting. Proxy specialists might investigate and challenge the votes assuming they are muddled.

Hostile Bid versus Friendly Bid

Not at all like a hostile bid, a friendly bid is approved by management. An offer that is accepted by management and the board of directors is viewed as a friendly bid, as things are genial. In this case, the gaining company generally has more access to the company and significant data. On the flip side, a company undertaking a hostile takeover might need to do as such with minimal internal data about the company as the management has been unpleasant.

Illustration of a Hostile Bid

In October 2010, French drug company Sanofi-Aventis offered shareholders of U.S. biotech company Genzyme $69 a share subsequent to being repelled on different occasions by Genzyme management. All the while, Sanofi CEO Chris Viehbacher sent Genzyme chief executive Henri Termeer a letter in which he professed to have the support of Genzyme shareholders having over half of outstanding shares.

Shareholders were given until December 2010 to acknowledge Sanofi's offer. As numerous analysts anticipated, the majority of shareholders considered Sanofi's offer low and the bid was fruitless.

A deal was at last approved by Genzyme's board of directors in February 2011, when the company agreed to a price of $74 a share plus contingent value rights tied to the performance of Genzyme's experimental different sclerosis drug Lemtrada.

Features

• Hostile bids are takeover offers taken straightforwardly to shareholders since management has dismissed the offer.
• A friendly bid is something contrary to a hostile bid, where management acknowledges a takeover offer.
• A hostile bid can spark a proxy fight at times, where the procuring company hopes to supplant the management of the target company.