Hostile Takeovers : The Power of the Prey

Abstract: Takeovers are used as a mean for companies to grow and gain entry to new markets. Hos-tile takeovers, apart from the friendly takeovers, is when an acquirer tries to takeover a corporation against the will of management, shareholders and board of directors of the target company. All listed companies run the risk of being a target for a hostile takeover, and to-day many companies are trying to involve actions protecting them from possible threats. Lacking protection can evolve into a costly defense program with actions with fictitious names such as White knight, Pac-man and Poison pills. The purpose with this thesis is to describe and analyze hostile takeovers and hostile takeover attempts in Sweden, and the defense tactics involved in the process. In this thesis a deductive approach will be used, where theories are used as guidance when searching for explanations. On the basis of the defense tactics described in the theory empirical data has been gathered with the purpose of seeing if the expectations reflect reality, and conclusions about their efficiency. The thesis has used a quantitative research method where the focus is on what, where and when. The aim of the thesis is to classify targeted features and count them, with the intent to construct statistical models with an underlying purpose of explaining what is observed. The most frequently used defense tactic used by the target company in a hostile takeover in the Swedish market is to attack the logic of the bid. Around 56 percent of the targets in a hostile takeover or a hostile takeover attempt have used this defense tactic to avoid a hos-tile takeover. The aim with an implemented defense tactic is to avoid a hostile bid or making it impossible for the hostile bidder to proceed with the bid and close the deal. The White knight and White squire defense tactic is the most successful defense tactic when it comes to not finalizing the hostile bid, in 90 percent of the cases the deal is not closed if the target chooses to use a White knight as a defense tactic. A secondary objective with a defense tactic is to force the hostile bidder to increase the bid and pay more for the target company. In the Swedish market, the use of Corporate restructuring as a defense tactic has made the hostile bidder to increase the bid in 67 percent of the cases and the use of Positive public information has forced the hostile bidder to increase the bid in more than half of the cases. The question why these defense tactics are the most frequently used strategies, is explained by two variables. The first one is the cost and simplicity variable, where Attack the logic of the bid and Public information ends up. These defense tactics are cost efficient and can be seen as natural step for the target company when deciding not to approve of the offer made by the acquirer. The second variable is the proven efficiency, where the target knows if implementing this defense tactic the risk of being acquired by the hostile bidder is relatively low, a good example of this is the White knight defense.