Hostile Takeovers: A Primer for the Decision-Maker

A hostile tender offer (“takeover”) begins with an unsolicited offer by a bidder to purchase a majority or all of the target firm’s shares. The bidder will set the offer for a particular period of time, at a price, and a form of payment, and may attach conditions to the offer. The target will ordinarily undertake evasive maneuvers. Research shows that the hostile bidder consummates a deal in about 20 percent of the cases. In roughly 30 percent of the cases, the target is acquired by another, usually “friendly,” firm. And in the remainder of the cases, the target remains independent. The complexity, uncertainty, and drama of these events seem to defy an easy grasp.
Keynes’ famous words afford a basis for understanding, analyzing and designing or repelling hostile tender offers: takeovers are games. In the arena of M&A, the professional investor that Keynes cites is the arbitrageur. One can understand these events and the arbitrageur better by studying them the way one studies a game:
! Gain the perspective of the various players in the takeover scenario, their motives and
behaviors.
! Master important rules and defenses that constrain the players.
! Anticipate the paths that outcomes may take.

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