Target, Acquirer, Board Of Directors: Understanding 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.

The acquisition has again brought forth the debate around hostile takeovers. While some call this acquisition an example of a hostile takeover, others disagree.

What is a hostile takeover?

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.

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

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 undervalued and hopes to benefit from this in the long run. Another reason could be that the acquirer wants to enter the sector in which the target company operates.

What are some examples of hostile takeovers in the past?

One of the famous hostile takeovers is the acquisition of Cadbury by Kraft Foods in 2009. 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, Kraft offered $19.6 billion for the deal. Cadbury finally relented, and in March 2010, the takeover was finalised.

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 to switch sides and in total held 38 per cent stake in the company, taking over the control from Pillai.

India has also witnessed some hostile takeovers in the past. India Cements' acquisition of Raasi Cements in 1998, Emami's acquisition of Zandu in 2008 and Larsen & Toubro's acquisition of Mindtree Limited via Cafe Coffee Day's VG Siddhartha are some examples.

Can the target company prevent a hostile takeover?

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.