MiniEssay1edit

Topics: Mergers and acquisitions, Corporate finance, Takeover Pages: 2 (527 words) Published: December 7, 2014


MBA 570
Module 1 Mini-Essay 1

What is a hostile takeover and what generally happens to the stock price of the firm being acquired in a hostile takeover? How does a hostile takeover affect the company’s stakeholders (shareholders, executives, employees, and society in general)? Is it usually beneficial or detrimental to these stakeholders? Why?

Hostile Takeovers

In the world of business we find more comfort with words such as mergers or acquisitions. These two words represent how companies buy, sell and recombine businesses. They're also the reason why today's corporate landscape is a maze of conglomerations. Insurance companies own breakfast cereal makers, shopping mall outlets are part of military manufacturing groups, and movie studios own airlines, all because of mergers and acquisitions. However, not all mergers and acquisitions are peaceful. Sometimes, a company can take over another one against its will in the form of a hostile takeover. “In a hostile takeover, an individual or organization sometimes known as a corporate raider can purchase a large fraction of the stock and acquire enough votes to replace the board of directors and the CEO”(Berk & DeMarzo, 2011). “A hostile takeover occurs when an acquiring company tries to gain ownership of another company by methods other than a straightforward purchase”(Scott, 2014). Facebook famously purchased mobile photo sharing app Instagram for $1 billion, Delta Air Lines acquired Trainer, a refinery formerly owned by Phillips 66, Wal-Mart bought the search engine Kosmix, and the social media analytics solutions company One Riot. Then, earlier in January 2012, it bought iOS development firm(Wong, 2012). Hostile takeover bids are comparatively rare and according to the Financial Times the number has fallen to a decade-low, representing under 5% of all mergers and acquisitions activity (Brickmore, 2014). This tactic only works with publicly traded companies....
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