WHAT IS A HOSTILE TAKEOVER?
A hostile takeover in mergers and acquisitions is a form of takeover where the acquiring company acquires the target company without the approval of the Board of Directors. The fundamental difference between a hostile and a friendly takeover is that in a hostile takeover, the BOD does not approve of the transaction. The acquiring company can use a number of strategies to acquire the target company. On the other hand, the target company can also use a number of defenses against the acquiring company to try and stop the takeover.
One such strategy, emerging during these times of a worldwide pandemic is the use of Long-Term Strategic Investments. Typically, these are investments made by a company in another company with the view of transferring ownership or control. For instance, if Company A is of the opinion that Company B has a potential to become a monopoly in the domestic market and emerge as a tough competitor in the international market by the end of a certain year, Company A would invest in Company B buying up shares in the company bit by bit. When they become the majority shareholder of the company, they may elect to replace the Board of Directors with people from their quarters.
There are however, several checks in place to ensure this does not happen. These checks differ from country to country. In India, the Securities and Exchange Board of India, requires the companies to review their share holdings every quarter, so as to get an understanding if there is a possibility of a hostile takeover.
TAKEOVERS: PRE-COVID ERA
In the pre COVID era, takeovers were more friendly than hostile. The management of the companies saw huge potential in the target companies, would through a deal acquire the company. The deal would be such that it is a win-win situation for stakeholders of both the companies.
Some of the most famous takeovers, which has resulted in massive success of the companies include names like:
- RPG Group: The RPG group led by the takeover wizard, RP Goenka made a series of acquisitions starting off with the Duncan in 1959, followed by Dunlop India and some other prominent names.
- TATA Group: The most famous acquisition of the Indian business tycoon Ratan Tata is that of Jaguar Land Rover from Ford Motors. They also acquired Tetley Tea, which was twice the size of Tata Tea and had also introduced the world to the concept of tea bags.
- VIDEOCON Industries: The most successful acquisition of VIDEOCON Industries have undoubtedly been the acquisition of French electronic company Thomas SA and Swedish giants AB Electrolux’s Indian subsidiary Electrolux Kelvinator.
- UNITED BREWERIES: The Vijay Mallya led United Breweries acquisition of White & Mackey made them the second largest spirits manufacturer if the world. It also restored partial peace with the Scotch Whiskey Association, which had opinionated UB’s whiskey is not authentic whiskey.
COVID-19 AND ITS LINKS WITH TAKEOVERS
Amidst the outbreak of the COVID-19 pandemic, that has brought economies to a halt, and the world has come to a standstill, there is an increased speculation of hostile takeovers. The share market has hit all time lows, with most analysts predicting a situation much worse than 2008 and companies facing losses and subsequently filing for bankruptcy.
This creates an opportunity for investors looking to invest for the long term to enter into the markets. Arising speculations state most of the funds are flowing in from Chinese corporates. Most of the countries have revised their FDI and FII policies and have brought these inflows of funds into the purview of government intervention. The government of India has proved to be a knight in shining armor, revising its FDI policies, stating all funds flowing in from countries sharing land borders with India, would be subjected to government approval. The sole objective of this is to keep a check on hostile takeovers, considering the fact that the revision was done after HDFC reported that 1% shares of the bank was bought by Chinese Central Bank.
The pandemic has severely impacted M&As across the world, with the general tone of speculations shifting towards fears of hostile takeovers, especially by China, clubbed with the speculations of China’s aspirations of becoming a superpower. However, measures at the right time and slow scrutiny owing to the lockdown clubbed with the share market fluctuations have all played their part in keeping a check on such takeovers.
