Defenses to Hostile Bids

Defenses to Hostile Bids

Defenses to Hostile Bids


  • Types of bids
  • Defenses to prevent hostile bids

Referenced syllabus: C.3 (b)

Types of bids

Takeovers can take place in a:

  • Friendly way – acquirer communicates with the board in target company for the best price to offer.
  • Hostile way – acquirer directly contacts shareholders to buy the target company, rather than be through the board.
  • Way 1: Tender offer – acquirer makes an announcement to target company’s shareholders, to offer an attractive price to buy their shares.
  • Way 2: Proxy fight – acquirer finds the largest shareholder in target company, and persuade it to let the board go ahead with the acquisition.
  • Way 3: Creeping tender offer – acquirer buys lots of shares of the target company in the open market, before they finally offer the complete acquisition.

Defenses to prevent hostile bids

If the offer is in a hostile way, the board will notice this very quickly. The following defenses can be made.

  • Pre-bid: before an offer(to acquire target company) is made.
  • Post-bid: after the offer (to acquire target company) is made.

Pre-bid (ASAPP)


  • To sell the most valuable asset within the company, so that to make it less attractive to the potential buyer.
  • This could be tangible or intangible assets.
  • Also known as “sell crown jewel”

Strategic shareholdings

  • To enable directors hold a large amount of shares.


  • To change the articles, ie the percentage of votes before M&A is approved, say 85%.
  • Also known as “super majority”.

Poison pill

  • To involve things making company look unattractive to buyers.
  • For example, offer share options to directors by allowing them to buy shares at a very low price after M&A take place.

Golden parachutes

  • To give directors very generous packages if M&A take place, for example, compensation fees.
  • This increases costs to buy the target company.

Post-bid (CACCW)


Provide a new profit forecast (must be examined by certified auditors per City Code in the UK), or to revalue the assets to convince shareholders that the share price offered is low.

Attack the bidder

Comment negatively on the bidder’s:

Management style; accounting issues; lack investment.

Counter bid

Buy the bidder instead.

Competition authority

Seek government prevention and persuade it that the bid is against the public interest, or not following the takeover regulation.

White Knight

To find a more friendly acquirer instead. Usually this is the last resort strategy.


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Categories: : Advanced Financial Management (AFM)