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A hostile takeover is a transaction in which one entity or investor tries to take control of a company without the permission of that company’s management or board of directors. That’s why the unwelcome acquisition bid is called ‘hostile.’
There are several ways a hostile takeover can occur. The hostile company or investor may make a tender offer to buy the other company’s shares directly from shareholders at a premium. Or they may attempt a proxy fight, where the hostile company tries to replace the other company’s board of directors.
The implications of a hostile takeover can affect any investors of all stripes. If you own shares of the companies involved, the outcome of a takeover can be important for short- and long-term stock price movements.
Key Points
• A hostile takeover occurs when an entity or investor attempts to gain control of a company without the approval of the target’s management or board of directors.
• Reasons for these takeovers often include a belief that the target company is undervalued, or a desire to acquire its assets, brand recognition, and market share.
• Hostile bidders often use aggressive tactics such as purchasing shares directly from shareholders to bypass leadership or attempting a proxy fight to vote out current board members.
• To stop such takeovers, target companies often employ defensive measures, such as diluting share value, buying back its own stock at an elevated price, implementing costly executive severance, or trying to acquire the acquirer.
• Hostile takeovers may cause significant fluctuations in stock prices for both the target and bidding companies.
• Hostile takeover bids sometimes fail as a result of successful company defenses, a lack of shareholder support, or regulatory intervention.
How Hostile Takeovers Work
A hostile takeover is a type of legal acquisition in which a bidder — either another company or an investor — seeks to acquire a majority stake in the target company without the approval of the target’s management and board of directors. Hostile takeovers are often characterized by aggressive tactics such as proxy fights, tender offers, and open letters to company shareholders.
This aggressive action contrasts with typical acquisitions, where two companies work together to agree on a deal, and the board of directors of the target company approves of the purchase. Investors who own stock in a company that’s involved in any kind of merger or takeover need to pay attention to the motives, proposed terms, and possible outcomes. It’s one more element of understanding stock volatility.
Reasons for a Hostile Takeover
There are many reasons why a company or investor may try to take over another company. Hostile takeovers may occur when a target company’s management refuses initial takeover offers, but the bidding company is persistent in its efforts to acquire the company.
Sometimes it’s because the stock market undervalues the target company’s shares, and the bidder believes that they can increase the company’s value. Other times, it may be because the bidder wants the target company’s assets, brand recognition, or market share.
If the company making the hostile takeover successfully acquires a majority of the shares, then it can gain control of the target company. Once in power, the acquiring company can make changes to the target company’s management, strategy, and operations.
In some cases, the company making the hostile takeover may take steps to increase the value of the company, such as selling off non-core assets, cutting costs, or increasing investment in research and development.
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Hostile Takeover Strategies
There are a few ways a company may pursue a hostile takeover. Sometimes a bidder may try to buy a significant percentage of shares of the target company on the open market, hoping to gain enough voting power to persuade the board of directors to accept a takeover offer. If that doesn’t work, the bidder may use its voting power to change management.
The bidder may also take aggressive measures, such as making open letters to shareholders or launching a public relations campaign to pressure the target company’s management to accept the offer. The most common hostile takeover tactics include:
• Tender offers: A tender offer is when the bidding company reaches out directly to the target company’s shareholders, offering to purchase shares — usually at a premium to the current market value. The bidder pursues a tender offer to bypass a company’s leadership and get enough shares to have a controlling stake in the company. Each shareholder can then decide if they want to sell the stake in the company.
• Market sweeps: Also called a “street sweep,” is when a prospective acquirer buys up a significant portion of a target company’s stock directly on the open market, or through block trades, which allows them to bypass the tender-offer process.
• Proxy fights: A proxy fight is a battle between competing groups of shareholders to gain control of a company that’s built into the shareholder voting process. In a hostile takeover, a bidder, which usually owns a portion of the target company’s stock, tries to persuade other shareholders to vote out the target company’s management. This may allow the bidder to replace the board of directors and seize control of the company.
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Examples of Hostile Takeovers and Takeover Attempts
A hostile takeover usually starts when the acquiring company makes an unsolicited bid to purchase the target company. If the board of directors of the target company doesn’t approve of the proposal, they may reject the offer. The acquiring company then will pursue a hostile takeover bid by going directly to the shareholders or trying to replace the board of directors.
However, hostile takeovers don’t usually reach this conclusion. The target companies may defend themselves, causing the bidding company to drop the takeover attempt. Or the target company’s board of directors will relent and eventually agree to terms on an acquisition.
In some cases, antitrust laws or shareholder resistance can thwart a hostile takeover in its tracks.
Paramount’s Acquisition of Warner Brothers
Paramount Skydance (PSKY) used a hostile takeover strategy to purchase Warner Bros. Discovery (WBD) for $110.9 billion in 2026. Originally, Warner Brothers was in talks to be acquired by Netflix for $72 billion. Paramount circumvented those plans with a tender offer directly to shareholders and was able to clear regulatory hurdles.
Choice Hotels’ Attempted Takeover of Wyndham Hotels & Resorts
When Choice Hotels International, Inc. (CHH) made a hostile bid for Wyndham (WH) early in 2023, concerns arose over the potential for a monopoly, given that each company controlled multiple hotel brands and close to half a million hotel rooms.
Choice made multiple attempts to acquire Wyndham, starting in April 2023, but by December their strategy had evolved into an outright takeover. The $7.8 billion attempt did not go through, however, and Choice backed out in March of 2024, citing a lack of shareholder support.
JetBlue’s Strategy to Acquire Spirit Airlines
In March of 2024, JetBlue (JBLU) abandoned its attempted $3.8 billion acquisition of Spirit Airlines (SAVE). This marked the end of JetBlue’s protracted pursuit of the smaller budget airline, which began in 2022 as a counterbid to Frontier Airline’s proposed merger with Spirit. After Spirit initially rebuffed JetBlue’s advance, the situation shifted into a hostile takeover attempt. Ultimately, the Justice Department ruled against takeover and JetBlue ended its pursuit. (More recently, Spirit began shutting down operations in mid-2026 after struggling with bankruptcy filings and financial difficulties.)
Elon Musk Takes Over Twitter
In one of the most widely followed corporate acquisitions in recent years, Tesla (TSLA) CEO Elon Musk made an unsolicited offer to take over Twitter in 2022, amid a months-long process that was closely followed — and widely debated — by business and media alike.
Twitter initially adopted what’s called a poison pill defense strategy to protect against a hostile takeover. However, the situation ultimately resolved into a $44 billion negotiated buyout that closed in October 2022, paving the way for Twitter’s rebranding as X in 2023.
Sanofi’s Acquisition of Genzyme
The French health care company Sanofi (SNY) attempted a hostile takeover of the American pharmaceutical firm Genzyme in 2010. Before the hostile bid, Sanofi’s management made several offers to buy Genzyme, but the American company’s management declined.
As a result, Sanofi courted shareholders to gather support for a deal and made a tender offer. After a lengthy negotiation period, Genzyme management finally accepted a deal. Sanofi bought Genzyme for $20.1 billion in 2011.
Kraft Foods’ Takeover of Cadbury
Kraft Foods (KHC), an American food company, launched a hostile bid for Cadbury, a UK-based chocolate company, in 2009. The hostile takeover was motivated by Kraft’s desire to increase its market share in the global confectionery market and acquire Cadbury’s valuable portfolio of brands. Cadbury’s management opposed the takeover and put together a hostile takeover defense team. Also, Cadbury shareholders and the UK government opposed the deal. However, Kraft was ultimately successful in acquiring Cadbury, and the takeover was completed in 2010 for $19.6 billion.
How Can Companies Defend Against Hostile Takeovers?
Companies can deploy various strategies to defend against a potential or imminent hostile takeover. These defensive plans are intended to make the hostile takeover more difficult, expensive, or less attractive to the bidder.
Poison Pill
Companies may adopt a shareholder rights plan, more commonly known as a poison pill, to protect themselves from a hostile bidder. With a poison pill, the target company’s shareholders (excluding the hostile bidder) have the right to purchase additional shares at a discount if a hostile takeover attempt is made, which may drastically dilute the hostile bidder’s stake in the company. This may make it more expensive for the acquirer to buy a controlling stake in the company and often deters hostile takeover attempts altogether.
Golden Parachute
A golden parachute is a hostile takeover defense where the target company offers its top executives large severance packages if another firm takes over the company and the executives are terminated due to the acquisition. This makes the purchase more expensive and potentially unattractive for a potential buyer.
Pac-Man Defense
A Pac-Man defense is an offensive strategy employed by a target company in a hostile takeover attempt. A Pac-Man defense refers to a target company that fights back against a hostile bidder by launching its own takeover bid for the bidder.
Greenmail
The Greenmail strategy is designed to prevent the takeover by repurchasing the company’s own stock at an often substantial premium from the aggressive shareholder. The greenmail tactic can be controversial since it may negatively impact shareholders.
Crown Jewel Defense
The crown jewel defense is used in a hostile takeover by the company that’s facing an unwanted acquisition attempt. In the crown jewel defense, the target company will spin off its best-known, most-valuable, or most-promising assets in separate sales as a way to reduce its appeal to the hostile bidder. In the world of hostile takeovers, it’s seen as a last-resort tactic, because it forces the target company to lose much of its value often only so that its management team can maintain control. This tactic may affect how investors evaluate the stock.
White Knight Defense
The white knight defense is a tactic used by a company to resist or stop a takeover by finding another third-party to acquire them instead. That “white knight” may be an investor or a corporation who offers better terms for the incumbent management team and shareholders.
How Hostile Takeovers Affect Investors
A hostile takeover can significantly affect investors who own shares of either the target or bidding company, causing uncertainty in short- and long-term stock market prospects.
In the short term, investors who own shares of the competing companies may see share prices rise or fall, depending on whether the markets view the proposal as a good or bad deal.
The target company’s management may also make the company less attractive to a bidder, such as by adopting poison pill provisions or increasing debt levels. These tactics may increase costs and debt burdens, which might negatively impact the long-term outlook for the company.
However, the target company’s share price may be positively affected as the hostile company tries to buy the target company’s shares at a premium.
If the hostile takeover is successful, the investors in the target company may see a change in the management of the company, as well as a potential change in the company’s strategy. This may change the long-term outlook for the company, which may be bullish or bearish for investors.
On a macro level, a hostile takeover can also affect the industries in which the target company and bidder operate. If the hostile takeover is successful, the industry may see a consolidation of companies, affecting market competition and share prices of related firms.
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The Takeaway
Investors may hear about hostile takeover bids in the press, causing them to wonder how the situation may affect them and their portfolios. In some situations, the stock of the companies involved may go up, and the stock may go down in other situations. In the end, it’s important to monitor the news of the deal carefully and pay attention to price fluctuations.
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FAQ
What is the difference between a hostile and friendly takeover?
A hostile takeover will appeal directly to shareholders, bypassing the target company’s board. A friendly takeover, on the other hand, is supported by the boards of both companies, as well as their shareholders.
Can a hostile takeover be stopped?
Hostile takeovers can be stopped, and often don’t succeed. Shareholders may reject the proposals made by would-be hostile acquirers. Such takeovers can also fail for other reasons. The target company may take effective defensive measures that make the takeover unattractive, the company’s share price may rise beyond what the acquirer can afford, or another buyer may emerge.
What happens to my shares during a hostile takeover?
If both companies involved in a hostile takeover attempt are public, shareholders will generally keep their shares throughout the takeover attempt. A hostile takeover may, however, have a pronounced effect on the share prices of both the acquirer and the target.
Who benefits most from a hostile takeover?
In many situations, the shareholders of the target company may benefit from a hostile takeover, at least in the short term. This is because the acquirer usually offers a significant premium to the stock’s current price to win shareholders over. The acquiring company sometimes benefits by absorbing a strategic competitor, taking on valuable property or new markets.
Are hostile takeovers illegal?
Hostile takeovers are perfectly legal mechanisms within corporate law. But they are highly regulated to ensure transparency, fairness, and compliance with anti-trust and corporate governance laws.
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