Mergers, Acquisitions, and Corporate Restructurings, Fourth Edition

Chapter 6. Takeover Tactics

During the fourth merger wave of the 1980s, increasingly powerful takeover tactics were required to complete hostile acquisitions because potential targets erected ever-stronger antitakeover defenses. Before this period, comparatively simple tactics had been sufficient to force a usually surprised and bewildered target into submission. As hostile takeovers reached new heights of intensity, targets became more wary, and bidders were required to advance the sophistication of their takeover tactics. When the pace of takeovers slowed at the end of the fourth merger wave, hostile takeovers also became less frequent. Nonetheless, after a lull at the end of the fourth merger wave that lasted a few years, hostile takeovers started to increase in frequency. They became commonplace in the fifth merger wave and remain so.

This chapter analyzes the evolution of takeover tactics over the past quarter of a century and discusses how they are used and their relative effectiveness. It will become clear that the options for the hostile bidder are fewer in number compared with the broad variety of defenses that targets implement in advance of and during a hostile bid. The bidder is typically left with the choice of three main tactics: a bear hug, a tender offer, and a proxy fight. Each tactic has its strengths and weaknesses. In addition, each may be implemented in varying manners to increase the likelihood of success. The options and their shareholder wealth effects are ...