Busted Takeover

Finance a la shmoop what is a hostile takeover?

alright nose plugs 4 less has been run poorly for a decade it used to be the [Man discussing company with nose plugs]

dominant nose bleed preventer in the industry but after years of you know

leakage the stock has come all the way down from a hundred bucks a share to

twenty dollars today frustrated investors who bought in at a hundred and

then 80 and then 72, 53, 45 and 33 have written

reams of complaint letters to the board who just doesn't seem to listen to what [Man angrily typing complaint on keyboard]

is an obvious fix well they have to fire the CEO and put someone in power who

will you know stop the bleeding but they won't for whatever reason the board is

remaining loyal to the CEO so now these angry shareholders and yes they are

hostile well, they get together and openly try to buy the company under a

process where they buy off as many shares as they can common shares they

team up among themselves yeah and then finally when they have a majority

ownership in the company or at least enough to sway the vote they start [Pie chart appears with hostile shareholders]

electing new board members with their common share votes

you know board members who actually listen to them remember that it's the

common shareholders who elect the board here people then the board hires the CEO

who hires well pretty much everyone else and hostile takeovers still happen these

days or at least get threatened here's one of the juicier ones and arguably one

of the worst wealth destroying deal passes in history when Microsoft tried to

go hostile and by Yahoo in 2008 and the board didn't listen and while they ended [Man with microsoft briefcase for head giving presentation]

up selling for less and so here's kind of the letter yeah you can kind of skim

So went on and on Yahoo past and while bad things [Microsoft merge failure newspaper article appears]

happened so hostile takeovers do they happen to well-run good companies who

were doing well? well generally no they're only bad for poorly run

companies and actually good for the shareholders because hostile takeovers

usually mean the share appreciates in value

and so then the common shareholders who actually own the company well at least

they eventually get paid at least something closer to a fair price so yeah

the best way to avoid a hostile takeover well as always to plug the leak before [CEO plugs in nose plugs]

it you know gets to be a problem