5 Recent Hostile Business Takeovers And Lessons Entrepreneurs Can Learn

 

 

 

Whoever referred to the corporate business world as an “urban jungle” was not wrong. However, unlike a jungle of some sort, where only the strongest survive, in the business world, you do not need strength to survive. Instead, you need intelligence – business intelligence.

Over the years, one of the smartest business moves that can be likened to a move on a chessboard by a grandmaster has been a hostile takeover.

A hostile takeover refers to a business strategy that comes to light when one company buys another company. Pretty normal, you will say—why not? One company buying another company may sound normal—but not in this instance.

In this case, the company buys the target company despite objections or the position of its board of directors. It is the direct opposite of a friendly takeover, where both parties sign a Memorandum of Understanding and work cooperatively toward the end result.

One major reason why hostile takeovers occur is as a result of the valuation of target companies. When an investor or investor-company believes that a target company is significantly undervalued or is achieving below its potential and that the board of directors or current management do not have the competence to manage the misevaluation, they initiate a hostile takeover.

So, in such a situation, instead of the investor or investor-company approaching the management or board of directors of the target company, they give the shareholders an offer they cannot refuse. When shareholders get information that their shares are undervalued and are losing out on a chance to get more value, they begin to shift alliances, resulting in building a foundation for a hostile takeover.

The first hostile takeover recorded in history occurred in the United States when Posner and DWG executed a takeover of Sharon Steel Corporation in 1969. According to reports, Posner was attracted to Sharon Steel due to their attractive valuations, balance sheets, and cash flow characteristics – which they believed were undervalued.

I have highlighted below five recent examples of hostile takeovers and how the strategies were executed. Check them out!

 

mPharma Hostile Takeover of HealthPlus

The news that mPharma has acquired HealthPlus – the leading pharmaceutical chain in Nigeria, came as a surprise to many. Was HealthPlus bankrupt or in the market for a bailout? The answer is NO! If so, what happened? Well, the simple answer is – a hostile takeover, and this was how it occurred.

HealthPlus is a public limited company by shares, and mPharma, a healthcare company that can be regarded as a potential competitor, acquired the majority of the shares in HealthPlus, leading to the takeover.

With control of a majority of the shares in the company, the former investor of HealthPlus, Alta Semper, had no alternative but to sign the agreements leading to the acquisition of the HealthPlus Group by mPharma. Through the acquisition, mPharma has achieved its aim of expanding its operations within Nigeria and Africa through the pre-existing retail footprint of mPharma.

 

Elon Musk Acquisition of Twitter

Earlier in the month, we mentioned that Elon Musk’s acquisition of Twitter ranks as one of the top events that shaped Africa in 2022. Many critics have called it an exhibition of wealthy arrogance, and others believe it is a manifestation of business genius. But what really happened was a hostile takeover, and this is how it occurred.

Twitter was not for sale. In fact, the thought of selling the second most popular social media platform in the world had never occurred to Jack Patrick Dorsey. But Elon Musk – a celebrity user of the social media platform, started organizing pools, asking other users if he should buy Twitter.

On April 14, Musk made an unsolicited offer to buy Twitter, which was received with a rejection and a “poison pill” strategy by Dorsey to resist a hostile takeover. But the persistence of Musk, the promise of free speech, and good offers for stakeholders pressured Dorsey to unanimously accept Musk’s buyout offer of $44 billion. Elon Musk completed the takeover on October 27, 2022.

 

Kraft Foods Inc. Buying Over Cadbury PLC

It is not everyday someone announces intentions to buy a company like Cadbury – owned by one of Britain’s most respected and decorated knights. But for Irene Rosenfeld, CEO of Kraft Foods Inc. September 2009 was the year, and if there is anyone to stand up to Sir Roger Carr, the Chairman of Cadbury PLC, it would be her.

Without first informing Sir Carr or the management of Cadbury PLC, Irene Rosenfeld publicly announced her intention to buy Britain’s top confectionery company, Cadbury PLC, for $16.3 billion. The makers of the world-renowned Dairy Milk chocolate reacted immediately to the news by saying the announcement was wayward, unwanted, and undervalued.

But sensing a business masterstroke, Sir Carr immediately set up a hostile takeover defense team. Even the British government, through the United Kingdom’s business secretary, Lord Mandelson, said the government would protect the interests of the famed British confectioner and ensure that the company gets the respect it is due.

Irene Rosenfeld went underground to “pull some strings” and returned in 2010 with an offer of $19.6. Although Sir Carr was still adamant about selling, and the British government was not in support of foreign companies acquiring UK companies, the deed was done because shareholders were in favour of the Kraft Food proposal. In March 2010, the two companies finalised the takeover.

 

Oracle’s Surprising Acquisition of PeopleSoft

The December 13, 2014 acquisition of PeopleSoft by Oracle for $10.3 billion would go down in history as one of the most skillfully implemented hostile takeovers in the history of business acquisitions.

PeopleSoft shares were experiencing a decline in the stock market. Within a year, the company shares fell from $56 to $15, and Oracle saw an opportunity to acquire the company. When Oracle made an offer to buy the company at $16 per share – a premium of just 6%, PeopleSoft resisted the offer.

Oracle made ten other offers, each of them an improvement on the last, but PeopleSoft was still adamant. It was at this time that Oracle made a masterstroke by pitching to stakeholders. In no time, 60% of the shareholders will have agreed to sell their shares to Oracle. In order not to risk losing the company for free if Oracle acquired a majority of the shares, the board of directors gave in and sold the company at $26.50 per share in December 2014.

The deal was a huge success for Oracle, which would find out that the company was stronger than they had even thought. The board of PeopleSoft obviously undervalued the company, and the acquisition made Oracle the number two company globally—only second to German rival SAP.  

 

Vodafone AirTouch Merger with Mannesmann AG

In what is to date regarded as the largest merger in history according to leading financial advisors, Goldman Sachs, Vodafone AirTouch PLC officially acquired Mannesmann AG.

The merger came after a battle between both companies as German telecom and engineering company Mannesmann AG fought for survival as it tried to keep off Vodafone AirTouch. 

After the battle for over three months, Mannesmann AG bowed to the merger, making Vodafone Europe’s and the world’s fourth largest publicly traded company with a combined worth of $365 billion, according to a report by the BBC.

 

Lessons Entrepreneurs can Learn from Hostile Takeovers

There are other high-profile hostile takeovers that have rocked the corporate world. Some of the examples include; the RBS takeover of Amro in 2000 for $165 billion, the Sanofi-Aventis acquisition of Genzyme Corp. in 2010 for $20.1 billion, and the AOL and Time Warner acquisition for $165 billion in 2000.

Entrepreneurs can learn a lot from hostile takeovers, especially in the way they structure and manage operations in their companies. One of the most important lessons is to avoid destructive divisiveness.

Entrepreneurs must learn to act quickly to heal rifts and ensure that all stakeholders are happy with the way the company is run. Investors and investor companies look out for such opportunities to initiate hostile takeovers by approaching aggrieved parties.

Also, entrepreneurs should avoid carrying out back-channel business deals that can put the company at risk. Many companies end up being targets as a result of their shaky positioning due to poor financial standings.

Lastly, entrepreneurs must pay attention to building credible teams. The most valuable assets are people, and entrepreneurs should surround themselves with intelligent, business-inclined minds invested in the company’s success.