Thread by @BeatTheStreet10

Elon Musk is considering Hostile Takeover of Twitter

So let's understand Hostile Takeover
- Indian cases
- defence against it

A thread 🧵

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What is Hostile Takeover?
The difference b/w a hostile and a friendly takeover is that the target company does not approve the transaction in a hostile takeover. In M&A, a hostile takeover is when a firm (acquirer) buys a target company by buying shares from targeted company's SH

Two commonly used hostile takeover strategies:

1. Tender Offer
A tender offer is an offer to buy shares from a shareholder of an acquirer business at a higher price than the market price.

2. Proxy vote
A proxy vote is when an acquiring firm persuades current shareholders to vote out the target company's management so that it can be taken over more easily.

Is hostile takeover legal in India?

Yes there is no specific law which don't allow hostile takeover.
So it's legal given it complies with all other laws like Takeover Regulations

But in India there are very few successful hostile takeover let's look at them

Swaraj Paul, London based businessman acquired DCM and Escorts but later he sold his stake to promoters.

He was the one who bring hostile takeover culture in India.

India Cements successfully takeover Raasi Cement

Mindtree Limited (“Mindtree”) acquired by Larsen and Toubro Limited (“L&T”)

L&T : Tables Have Turned

Manu Chabaria was trying to takeover L&T in 1980s

L&T reached out to Dhirubhai Ambani to save them

But now Dhirubhai was itself trying to do hostile takeover of L&T

But in 1989 Govt changed n forced to Ambanis to resign from L&T Board

In 2019 L&T did hostile takeover of Mindtree

today L&T itself owns L&T 10% stake through employee trust 2nd largest SH after LIC

Emami acquired Zandu in 2008

Some unsuccessful hostile takeover

LCI attempt to takeover Asian Paints : govt bring law to take approval if foreigner wants to acquire

Arun Bajoria vs Bombay Dyeing

RK Damani vs VST Industries
VST saved themselves by asking ITC to acquire shares of their co.

Harish Bhasin vs DCM Shriram Industries
Saved by issuing warrants to promoters

Essel Group’s bid for IVCRL : Essel decided not go ahead znd took u-turn

Dalmia group vs GESCO : saved by Renaissance group and later Mahindra who acquired shares in co

Damani considered taking control of India Cements in June-20

thehindubusinessline.com/companies/bill…

Some popular defences, and their appropriately dramatic names include:

The Poison Pill: The Poison Pill is where the Target Company dilutes its shares in a way that the Acquirer cannot obtain a controlling share without incurring massive expenses

Twitter doing same

The White Knight: if Target Company believes that it shall be unable to prevent a hostile takeover, it can seek a friendlier company to buy a controlling stake in the Target Company before the hostile bidder can do

Sale of Assets: If a board feels threatened, it may also sell off key assets and reduce operations so as to make the transaction less attractive to a hostile bidder.

Shark Repellents: A company can make special amendments to its legal charter that get activated only in case of a takeover being attempted. These amendments are made with a view to protect the board of directors from losing control of the company.

Pac-man defence: when the Target Company buys stock the Acquirer company and ultimately gains control of the Acquirer, thus preventing a takeover.

Greenmail: Greenmail is a defence in which the Target Company buys its own shares back at a premium from the Acquirer.

Hostile takeovers account for 19 per cent of global mergers and acquisitions and are running an all-time high in almost a decade as companies with cash-rich balance sheets continue to swallow their weaker counterparts at a fraction of the latter's true value

Source
Mondaq
Livemint
Business Standard
Ayush Rastogi , Advocate (LinkedIn)

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