How does a hostile takeover of a company work?
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It’s basically when a company that isn’t interested in being acquired by a larger gets acquired by a larger company anyway.
That’s what makes it hostile, it’s very one-sided in terms of consent.
The most common method of it happening is when the bigger company just buys a controlling percentage of the smaller company’s stock, and then using stockholder measures implements the changes they want in the smaller company until the takeover becomes complete and the smaller company becomes a part of the larger one.
I want to take over XYZ Corp because I think they’re mismanaged. I start buying a significant number of shares of the company to gain a foothold (say 5%) and demand the changes I think necessary, ask for a board seat, etc.
If that’s rejected, keep buying up more shares while starting to talk/negotiate with other large shareholders — perhaps a co-founder who has left, or a family of founders, etc. but typically it’ll be institutional investors like Vanguard, Fidelity, perhaps some Hedge Funds, etc.
With 50% of share ownership aligned, they can take over the company and make the changes. Sometimes it doesn’t even take that to enact change… just getting 30% or so in alignment is enough for board to push our CEO or make other changes w/out an actual takeover happening.
Public companies are run by the board of directors. The board represents the shareholders (the people who own stock). The people who are operating the company (the CEO, CFO, etc) might not want to do something, for example changing a product. This other party, if they can convince the shareholders to agree (perhaps by becoming shareholders themselves) can force the CEO (perhaps by replacing them or the threat of replacing them). This is a hostile action.
A hostile “takeover” happens when the decision to be made is about selling the company to another company.
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