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Hostile Takeovers

A hostile takeover is defined as an acquisition of a firm despite resistance by the target firm’s management and board of directors. This occurs when a stronger business absorbs another company against the target company’s will. Hostile takeovers are most likely to occur when a firm’s stock is undervalued relative to its potential because of poor management. Generally, the managers of the targeted firm are fired. This gives managers a strong incentive to take actions designed to maximize stock prices. How do hostile takeovers impact business, government, and society? Businesses, especially the targeted company, are greatly affected by hostile takeovers. Prior to takeovers, targeted companies are chastised by customers, competitors, and the communities in which they reside because of inadequate management, low or undervalued stock prices, etc. These takeovers are most likely to occur when a firm’s stock is undervalued relative to its potential because of poor leadership of the management team. Because of this, the managers of the targeted firm are generally fired after the merger is complete. The government has been heavily involved with hostile takeovers, as well as horizontal and vertical mergers. The Sherman Antitrust Act of 1890 was presumably the first real act of government interference regarding takeovers. This act stated the following: Section 1: Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint or trade commerce among the several States, or with foreign nations, is hereby declared to be illegal. Section 2: Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce…shall be deemed guilty of a felony…The antitrust laws that have followed the Sherman Antitrust Act of 1890 are as follows: Clayton Act of 1914...

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