In today’s competitive business landscape, companies often find themselves vulnerable to hostile takeovers. A hostile takeover occurs when an acquiring company bypasses the target company’s management and board of directors to acquire a controlling stake in the business. As a UK-based corporate lawyer, understanding the strategies to prevent such takeovers is vital in safeguarding our clients’ interests and preserving corporate integrity, writes David Little, a partner in our Corporate and Commercial Law team.
In this blog post, we explore key measures that can be taken to proactively prevent hostile takeovers.
1. Implement a Poison Pill Defence
One of the most common strategies to deter hostile takeovers is the implementation of a poison pill defence. This tactic involves introducing provisions in the target company’s articles of association or shareholders’ agreement that create unfavourable conditions for potential acquirers. By issuing new shares to existing shareholders at a discounted rate, the target company dilutes the ownership stake of the acquiring company, making the takeover financially unattractive. Poison pills can serve as a powerful deterrent, signalling to potential acquirers that their efforts will be met with significant resistance.
2. Create a Robust Corporate Governance Structure
Developing a strong corporate governance structure is essential in deterring hostile takeovers. Ensure that your clients establish an independent and competent board of directors with diverse expertise. Directors should act in the best interest of the company and its shareholders, regularly reviewing corporate strategies and risk management policies. Implementing staggered board elections or requiring supermajority votes for certain actions can help protect against sudden changes in the board composition. Additionally, a sound governance structure should include strict board confidentiality policies to prevent the leakage of sensitive information.
3. Cultivate Strong Shareholder Relationships
Building and maintaining positive relationships with key shareholders is vital in preventing hostile takeovers. Encourage your clients to engage in proactive communication with shareholders, keeping them informed about the company’s performance, strategic initiatives, and potential risks. By establishing a strong rapport, the target company can gain the support and loyalty of its shareholders, making it more challenging for an acquiring company to gather the necessary support for a hostile takeover.
4. Conduct Regular Anti-Takeover Assessments
Regularly evaluating the company’s vulnerabilities and conducting anti-takeover assessments is crucial to stay one step ahead of potential acquirers. Encourage your clients to perform comprehensive due diligence to identify any weaknesses in their organizational structure, financial performance, or market position that could make them susceptible to a hostile takeover. Once these vulnerabilities are identified, appropriate strategies can be implemented to address them effectively.
5. Utilize Legal Protections
Make sure your clients understand the legal protections available to them. In the UK, for example, the Takeover Code offers some defences against hostile takeovers, such as the requirement for an acquiring company to make a mandatory offer to all shareholders and the ability of the target company to seek regulatory intervention if the acquisition is deemed detrimental to the company or the public interest. Familiarize yourself with the legal framework and regulations in place to guide your clients through these processes effectively.
Preventing a hostile takeover requires a multifaceted approach that combines strategic planning, robust corporate governance, and proactive shareholder engagement. By implementing poison pill defences, establishing a strong governance structure, nurturing shareholder relationships, conducting regular assessments, and utilizing legal protections, you can equip your clients with the necessary tools to safeguard their companies from hostile takeover attempts. As a UK-based corporate lawyer, your expertise and guidance will be invaluable in protecting your clients’ interests and preserving corporate integrity in an ever-evolving business landscape.
Contact our Corporate & Commercial Solicitors
David Little is a Partner at Bishop & Sewell in our expert Corporate & Commercial team. If you would like to contact him, please quote Ref CB409 on either on either 07968 027343 / 020 7631 4141 or email firstname.lastname@example.org.
The above is accurate as at 17 July 2023. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.