Word by Word Definitions
: of or relating to an enemy
: marked by malevolence : having or showing unfriendly feelings
: openly opposed or resisting
: the action or an act of taking over
: to assume control or possession of or responsibility for
: to assume control or possession
: to become dominant
Financial Definition of HOSTILE TAKEOVER
What It Is
How It Works
A bidder may initiate a hostile takeover through a tender offer, which means that the bidder proposes to purchase the target company's stock at a fixed price above the current market price. Another method of hostile takeover is acquiring a majority interest in the stock of the company on the open market. If that is impossible or just too expensive, a bidder may initiate a proxy fight, which means that the bidder persuades enough shareholders to replace the management of the company with one which will approve the acquisition.
Why It Matters
Most acquisitions and mergers occur in the business world by mutual agreement -- both sides agree that all of the shareholder's interests are served best by the transaction. In those instances, both sides have a chance to evaluate the costs and benefits, assets and liabilities, and proceed with full knowledge of the risks and returns.
However, in a hostile takeover, because the management and board of the target company resist the acquisition, they usually do not share any information that is not already publicly available. As a result, the acquiring firm takes a risk and may unwittingly acquire debts or serious technical problems.
In addition, the loss of key managers and leadership within the company may cause a shakeup within the target company that may disrupt its operations and threaten its viability.
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