In 2020, Xerox made several bids to buy HP. After HP rejected the offers, Xerox attempted a hostile takeover using several common strategies. For example, Xerox planned to replace HP’s board at a shareholder meeting by nominating new directors friendly to their acquisition attempts. It then planned to present its case directly to HP shareholders. However, Xerox ended its hostile takeover only two months later. The Xerox-HP failed merger is just one example of a hostile takeover.
How Hostile Takeovers Work
When companies rebuff “friendly” bids, buyers might try less friendly ways to complete an acquisition. For instance, the buyer might do as Xerox did and try to replace management. Buyers might also buy stock until they have a controlling percentage of voting shares.
Stopping a Hostile Takeover
Corporate managers and shareholders have the right to reject offers for a corporation. As with Xerox and HP, rejecting a bid doesn’t always mean the battle is over.
In the past, companies have used some of the following strategies to stop a takeover:
- Poison Pill Defense. Also known as a shareholders’ rights plan, a company that’s being targeted dilutes the value of its shares. This makes the deal less attractive and more expensive for the purchaser.
- Staggered Board Defense. Corporations can separate their board of directors into groups that are elected at different times. This tactic makes it more difficult and time-consuming to replace the entire board with friendly directors.
- White Knight Defense. The targeted company’s board of directors could find a more suitable buyer that is willing to work with the current management.
- Stocks with Differential Voting Rights. Corporations could sell stocks that give shareholders fewer votes based on share ownership.
- Employee Stock Ownership Plans (ESOPs). Employees generally are more likely to align with the targeted company’s management and goals.
Directors, shareholders, and corporate managers have other strategies at their disposal. Taking preventive and pre-emptive actions could minimize the risk of a hostile takeover. When dealing with business transactions like this, it’s best to proceed with caution and only on the advice of an experienced business attorney or corporate counsel.
Is Your Company at Risk for a Hostile Takeover?
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.