Since shares are voted at the shareholders meeting, and few shareholders bother to appear for that meeting, they instead grant a proxy to someone else who will be attending the meeting to vote their shares, such as the corporate secretary. A proxy is the authorization of shareholders to vote their shares for them at the shareholders meeting. The term proxy fight is derived from the use of proxies. The new board may approve of being acquired by the entity that initiated the proxy fight. The result is a change in the membership of the board, which then leads to a change in the management of the target company. The Proxy FightĪ proxy fight is an attempt by those not in control of a business to use the proxy method of voting to obtain a sufficient number of shareholder votes to gain control of the board of directors. Even so, the matter will typically be decided within a few months. This period will be extended if a rival bidder appears or if not enough shares are tendered. Such an escape clause is only prudent for the acquirer, which would otherwise have to buy shares that it no longer needs, since the acquisition will not be allowed to proceed.Īnother advantage of the tender offer is that the acquirer could potentially gain control of the target company in as little as 20 days, if it can persuade shareholders to accept its offer. The acquirer can include escape clauses in its tender offer that releases it from the liability to purchase any shares for example, an escape clause could state that, if the government rejects the proposed acquisition for antitrust reasons, the acquirer can refuse to buy tendered shares. This eliminates the initial need for large amounts of cash to buy shares, and also keeps the acquirer from having to liquidate its stock position in case the tender offer fails. The particular advantage of a tender offer is that the acquirer is under no obligation to buy any shares that have been put forward by shareholders until a stated total number of shares have been tendered. The offer is at a fixed price, usually at a premium over the current market price, and is customarily contingent on shareholders tendering a fixed number of their shares or units.” “A tender offer is a broad solicitation by a company or a third party to purchase a substantial percentage of a company’s … registered equity shares or units for a limited period of time. The SEC defines a tender offer as follows: The Tender OfferĪn acquirer may resort to a tender offer to appeal directly to the shareholders of the target company. Both options essentially go around the target's management team, so that shareholders can have a direct say in the matter. A hostile takeover can be accomplished either through a tender offer or a proxy fight.

A hostile takeover occurs when an acquirer buys another entity despite the objections of the managers of the target organization.

What is a hostile takeover