Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 201

this, while the interested companies fight over it and outbid each other until one company finally emerges with the highest bid.

Many times, however, takeovers go sour. There are plenty of historical examples where takeovers have ended in failure because of a bad match, uncooperative employees, or other factors. So while a takeover bid may whet the shareholders' appetites, sometimes they may decide to reject the offer as, in the end, they view it as a detrimental move. What is the acquiring company to do in that case? They could back off, they could raise the bid in an effort to soften up the shareholders, or they could turn into a bully and try to take over the target company by force; in other words, launch a hostile takeover.

During a hostile takeover attempt, the acquiring company buys enough shares in the target company to become a majority shareholder. Becoming a majority shareholder means that they own more of the target company that anyone else, giving themselves a larger voting right in that company. With that in place, they can now easily influence the board into selling the company. Brute force.What can the company do to stop this? Sometimes nothing. Other times they can plead with their shareholders not to sell their shares until the stock price becomes too expensive for the hostile company to buy, but if they have a large number of shareholders, this may not be a practical solution. Another option is a strategy known as the poison pill. A poison pill is a defense mechanism through which the target company issues large amounts of convertible instruments (e.g., bonds) with low exercise prices in order to dilute and erode the hostile company's majority position. In other cases a white knight could be the savior. A white knight refers to a friendly entity that acquires enough shares in the target company to challenge the hostile company's position and force it to back off.While all this fighting is going on, the target company's stock usually sees a large amount of volatility, but it still may manage a rise as it becomes

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Copyright and Disclaimer
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Table of Contents Copyright and Disclaimer Foreword Money
Bonds Futures Stocks Options
Mutual Funds Retirement Final Words Appendix A

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