What is a hostile takeover?

On Tuesday, Gautam Adani-led Adani Group announced that it has acquired a 29.18 per cent stake in NDTV and will launch an open offer to acquire another 26 per cent soon. NDTV's owners have stated that it was done without their consent.

While some call this acquisition an example of a hostile takeover, others disagree. Let's discuss what a hostile takeover is

A hostile takeover happens when a company (acquirer) sets its eye on another company (target) and goes on to acquire it without the agreement of the board of directors of the target company.

There are generally two ways in which a hostile takeover takes place.

In the first one, the acquirer makes an offer to the target company's shareholders to bypass the management to get the required stake. This is called a tender offer.

In the other, an acquirer may start a proxy fight to replace the target company's management.

But why does a company initiate a hostile takeover?

The reasons for a company to take over another company may be diverse. One reason may be that the acquirer considers the target company as undervalued and hopes to benefit from it in the long run.

Another reason is that the acquirer wants to enter the sector in which the target company operates.

Let us now look at some examples of a hostile takeover in the past

In 2010, Kraft Foods acquired the famous British brand, Cadbury through a hostile takeover. In September 2009, the CEO of Kraft Foods, Irene Rosenfeld, announced her intentions to acquire Cadbury. It offered $16.3 billion for the deal. However, Cadbury's chair Roger Carr rejected the offer.

Carr appointed a hostile takeover defence team. The UK government also opposed the offer and said the British company must get its due respect.

In 2010, Karr offered $19.6 billion for the deal. Cadbury finally relented, and in March 2010, the takeover was finalised.

In another attempt, in 1993, textile tycoon Nusli Wadia tookover Britannia as its Chairman after a hostile takeover from Rajan Pillai.

Pillai had held the stake in Britannia through Danone. Wadia made Danone switch sides and in total held a 38 per cent stake in the company, taking over the control from Pillai.

India Cements' acquisition of Raasi Cements in 1998, Emami's acquisition of Zandu in 2008 and L&T's acquisition of Mindtree Limited via CCD are some other examples.

Can the target company prevent a hostile takeover?

Yes, the target company's management may employ certain strategies to stop the takeover. These include the golden parachute, the Pac-Man defence, the crown-jewel defence and the poison pill.

In April 2022, Twitter initiated the Poison Pill strategy to prevent the hostile takeover of the company by Elon Musk.

Under the strategy, the management puts a cap on the number of shares a person can buy. The additional shares are distributed among the shareholders, except the acquirer, at discounted rates. This dilutes the holdings of the new, hostile investor. It makes it difficult for the acquirer to go forward with the plan.