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Hostile Takeovers

Published June 15, 2010

Companies that combine, sell, and buy businesses use two different strategies to achieve their goals: mergers and acquisitions. While many mergers and acquisitions are harmonious, sometimes companies experience hostile takeovers, defined as those that occur without the consent of the target company. That is, an acquirer takes control of the company by purchasing its shares without the knowledge of its management. This type of action is often regarded as an attempt to wrest control away from current management.

Hostile takeovers usually have one of two results. A company that wishes to buy out another usually does so because of the target company’s expected profitability. In this case, the buyer usually wishes to keep the company as is, letting it conduct business as before, with the exception of having new management in place. However, this is not always the intention of the acquiring company. Instead,  the acquiring company may wish to find different uses for the target company’s tangible assets, such as its land or equipment. After the takeover is complete, the acquiring company will liquidate the target company’s assets and effectively destroy it.

It is important for the target company to consult a corporate attorney with experience in mergers and acquisitions. A corporate attorney will be able to advise of existing protections under the law and what can be done within the legal system to help fend off an unwanted buyout.

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