A hostile bid is a bid against the wishes of the target company’s management and is usually presented through a tender offer under which the acquiring company offers a substantial premium to current share price as it anticipates buying shares directly from shareholders.
A takeover or bid is perceived as hostile if (1) a bidder makes a bid on a company without discussing this with the target company upfront or (2) a bidder continues with its offer although it does not have the consent of the target company.
Public offer rules
Certain rulse apply to make a public offer; the Dutch public offer rules. Both the bidder and the target company need to comply with these rules in order to secure a transparent bidding process which is structured in an orderly fashion. However, according to these rules, informing the target company up front is not obligatory.
If the target company is not interested in a takeover by the bidder and the bidder wishes to continue without consent of the target company, the bidder continues in a hostile process.
A hostile bid or takeover can be accomplished in different ways. By an (by AFM approved) offer document in which the bid is elaborately explained. A bidder can also try to convince shareholders to act in concert in replacing current management of the target company in order to execute its plans.
Preventing a hostile takeover
Companies have different tools to prevent and/or postpone a hostile takeover. A company could buy back its own shares, find another bidder of its choice or in some cases use a protection measure, like preference shares.
Often, due to the large fragmentation of share ownership in large companies and the lead the management has in terms of knowledge, it is difficult for shareholders to stand up against management. The threat of a hostile takeover is often seen as an incentive for management to take action either way. A hostile bid, successful or not, can be seen in this context as economically beneficial by shareholders.