A not so hostile 2012

Mon, 14 Jan Pre-Open

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A hostile takeover is when a suitor takes over a target company whose management is unwilling to agree to a merger or takeover. As such, a takeover is considered hostile if the target company's board rejects the offer, but the bidder continues to pursue it.

While hostile takeovers many be a relatively new phenomenon in India, they have been taking place in the developed regions of the world for decades.

Now, put yourself in place of a management of an organisation. Why would you want to acquire a company against the will of its existing management or promoters?

One thought in your mind would be because you have high confidence in the target company's business and its future and find its valuations attractive enough to pursue it. The pre-requisites for doing the same would be easily getting funding options for financing. Not to mention, the overlying assumption of getting the regulatory approvals for the takeover.

At a decade low...

Given the overall uncertainty and cautious sentiments globally, volumes of all deals remained low. 2012 turned out to have seen the lowest number of hostile takeover volumes in a decade. As reported by the Financial Times, global hostile deal making volumes reached a little over US$ 100 bn in 2012. This figure is lower by one-third as compared to the preceding year 2011.

While merger and acquisition (M&A) volumes fell on a year on year basis, the proportion of hostile takeovers per se fell to 4% of the total M&A volumes. This proportion is lower by 20% on a year on year basis.

Europe being a region where not much action is taking place coupled with the unrest in certain countries also had their roles to play in terms of lower volumes during the year. Not to mention the lack of suitable candidates as well. In any case, it is believed that mining companies saw the most hostile bids in 2012.

Other factors may have had something to do with it as well...

It is believed that the increasing agitation of activist investors also would have had its role to play in the lesser volumes of such takeovers.

It must also be mentioned that regulatory bodies across the world have changed rules for hostile takeovers as well. As seen in the UK, target boards are given greater ability to reject unwanted offers. Back home in India, the Securities and Exchange Board of India (SEBI) announced the new takeover code - which amongst many changes included increasing the trigger point of an open offer from 15% to 25%.