Hostile Takeover
What does "Hostile Takeover" mean in law?
A hostile takeover is an acquisition attempt that proceeds without the approval or cooperation of the target company's board of directors, typically through a tender offer directly to shareholders or a proxy contest to replace the incumbent board. The target board may employ defensive measures such as poison pills, staggered boards, or white knight strategies to resist the hostile bid, but these defenses are subject to judicial scrutiny under the Unocal test, which requires the board to show a reasonable belief that a threat to corporate policy existed and that the defensive response was proportionate. If the board determines that a sale of the company is inevitable, Revlon duties require the directors to shift from defending the company to maximizing shareholder value by obtaining the best available price.
Definition
A hostile takeover is an acquisition attempt that proceeds without the approval or cooperation of the target company's board of directors, typically through a tender offer directly to shareholders or a proxy contest to replace the incumbent board. The target board may employ defensive measures such as poison pills, staggered boards, or white knight strategies to resist the hostile bid, but these defenses are subject to judicial scrutiny under the Unocal test, which requires the board to show a reasonable belief that a threat to corporate policy existed and that the defensive response was proportionate. If the board determines that a sale of the company is inevitable, Revlon duties require the directors to shift from defending the company to maximizing shareholder value by obtaining the best available price.
Example
When an activist investor launched a hostile tender offer at a significant premium to market price, the target board adopted a poison pill defense, which a court later evaluated under the Unocal test to determine whether the board's response was proportionate to the perceived threat.