Unsolicited Takeover Offers

Frank Aquila and Melissa Sawyer provide an overview of how to launch and respond to unsolicited takeover proposals. Among other things, this commentary addresses: (1) Who are the key players; (2) What options do bidders have; (3) What defensive strategies can targets employ; and (4) What role can advisors play.
The authors write: Unsolicited takeover activity tends to surge in times of economic uncertainty, when stock prices are low, seller price expectations are still high and the markets are volatile. Viewed in the light of an intelligent market, unsolicited takeovers can help to deliver value to shareholders when the public markets are otherwise undervaluing a target, or when the targets management or board is resisting a friendly transaction that could otherwise be in the best interests of the targets shareholders. Unsolicited proposals, however, can also be disruptive to a targets operations and can confuse shareholders about a targets long-term value. The techniques associated with launching and responding to unsolicited takeovers are designed to strike a balance between permitting unsolicited takeovers that would deliver full and fair value, while allowing targets to rebuff proposals that are not in the best interests of their shareholders.

Not every unsolicited takeover ends as a "hostile" deal. Many targets boards of directors ultimately agree to sell after receiving an unsolicited acquisition proposal. Even when there is an openness to an offer, targets often show some initial resistance to generate a higher "best and final" price for their shareholders. The typical "back and forth" between targets and bidders follows a path that is defined by both legal and strategic considerations. Most potential bidders select from a familiar menu of tactics, and most target companies opt to employ well-developed defensive devices that have been tested repeatedly in practice and in the courts. This article outlines the familiar features of unsolicited takeovers: who are the key players, what options do bidders have, what defensive strategies can targets employ, and what role can advisors play.

Although this article provides an outline of the basic unsolicited takeover tools, knowing the names of the pieces does not a great chess player make. Unsolicited takeovers have not been completely routinized. What makes these deals challenging is that no two companies are alike, and no two markets apply the same pressures on deals. Experienced outside advisors can help to anticipate issues, be proactive and respond creatively in unsolicited takeover situations.