A hostile takeover attempt provides incentives for CEOs and the board to manage companies while aligning with the interests of shareholders.

If a company is run poorly or inefficiently, the value of its shares will fall relative to other stocks in the industry. At that point it can be rewarding for another company, an individual, or an activist investor to make a takeover bid, bringing in better leadership.

In 2020, HP (NYSE: HPQ) fought off Xerox (NASDAQ: XRX)’s unsolicited $35 billion takeover bid, in part by terming the offer as too low.

HP, maker of personal computers and printers, said the deal would disproportionately benefit Xerox investors. The company also argued that Xerox lacked the experience to operate in HP’s segments and that the combined company would be saddled with massive debt.

Xerox eventually abandoned the bid, citing economic disruption amid the Covid-19 pandemic, which had wreaked havoc on global financial markets.

Since then, HP has been aggressively returning capital to shareholders through dividends and share buybacks.

This turnaround, coupled with HP’s superb leadership, has even earned the stamp of approval from legendary stock trader Warren Buffett.

Buffett’s conglomerate, Berkshire Hathaway (NYSE: BRK-B), recently disclosed that it has accumulated a stake of 11.4% in the company, worth around $4.2 billion.

In this post, you’ll learn the meaning of a hostile takeover and how it differs from a friendly one. We’ve also compiled a list of the top three deals that tick all of the boxes for a hostile takeover.

Let’s dive in!

What is a hostile takeover?

The definition of a hostile takeover, according to Investopedia, is:

When one company (called the acquiring company or “acquirer”) sets its sights on buying another company (called the target company or “target”), despite objections from the target company’s board of directors.

While takeover deals attract a lot of media attention, they are generally a space in the mergers and acquisitions (M&A) world not well understood.

Usually, big companies with lots of cash will attempt to acquire a promising company to simply kill competition or improve their own position.

Shareholders of the target company usually see an immediate benefit when their company is the target of acquisition since the acquiring company pays a premium price to acquire their shares.

A hostile takeover is different from a friendly takeover, which is when the management of a company accepts to the terms of the deal and agrees to be absorbed by an acquiring company.

However, you must remember the intent, whether hostile or friendly, must in the end create shareholder value.

Below are three of the top hostile takeovers in the past couple of years.

InBev’s $52 billion takeover of Anheuser-Busch

In July 2008, Belgium-Brazilian brewer InBev scooped up Anheuser-Busch, the maker of Budweiser, in a $52 billion deal.

InBev had in June submitted an unsolicited offer to Anheuser to acquire the iconic brewer for $65 per share, valuing the company at $46.3 billion.

According to InBev, the deal was to be financed with at least a debt of $40 billion, arranged and financed by eight banks, and a combination of equity financing and non-core assets.

But Anheuser rejected the offer deeming it “financially inadequate” and not in the best interests of its investors. The company also said it would deliver annual savings of $750 million and $1 billion in 2009 and 2010, respectively.

Additionally, it announced plans to increase earnings by hiking prices and slashing jobs, and boosting its stock buyback program.

Earlier, InBev had filed a suit seeking to confirm that all Anheuser board members can be ousted by shareholders without cause.

Anheuser hit back by suing InBev for “false and misleading statements” regarding its takeover bid.

Eventually, the brewers began discussions on a friendly merger. In an effort to seal the deal, InBev upped its offer by $5 to $70 per share, valuing Anheuser at $52 billion.

The two companies finally agreed to merge forming Anheuser-Busch InBev, the world’s biggest brewer.

Kraft Foods’ $21.8 billion takeover of Cadbury

2009 saw American food company Kraft Foods kick off a bitter battle to acquire British chocolate maker Cadbury.

Kraft, now Mondelez International (NASDAQ: MDLZ), needed to take over Cadbury to expand its snack business, particularly in emerging markets. Unfortunately, Cadbury was not for sale and its board aggressively opposed Kraft’s takeover plans.

In September 2009, Kraft made an unsolicited offer, which was worth about $16.2 billion. Cadbury responded fiercely with chairman Roger Carr dismissing Kraft as a low-growth company showing “contempt” for the beloved British brand.

UK trade unions also criticized the offer and requested the government and the European Union to block it.

Kraft turned hostile by refusing to raise its offer and decided to talk directly to Cadbury shareholders.

After three months of a fierce battle, Kraft sweetened the offer to a figure that valued Cadbury at $19 billion.

Cadbury’s board members agreed to recommend the bid to shareholders who later gave it a nod in 2010.

Sanofi-Aventis $20.1 billion acquisition of Genzyme

French pharmaceutical maker Sanofi-Aventis launched a friendly takeover bid for Genzyme in July 2010, offering to buy out the U.S. biotech firm at $69 per share in cash, or $18.5 billion.

The company, which later shortened its name to Sanofi (NASDAQ: SNY), sought to get hold of Genzyme due to the latter’s location in Cambridge, Mass., where it is easy to hire from a pool of highly-skilled researchers graduating from MIT and Harvard University.

Genzyme, however, turned down the offer, igniting a protracted and heated takeover fight.

The company’s founder Henri Termeer wrote a letter to Sanofi chief executive Chris Viehbacher telling him that his offer of $69 a share did not justify entering talks as it dramatically undervalued Genzyme.

On a call with analysts and investors in August, Viehbacher struck back saying he did not expect the process to end quickly and he was in no rush.

Viehbacher decided to go hostile in October and his company refused to up its bid, keeping it at $69 a share. Sanofi presented its offer to Genzyme shareholders who held more than 50% of the company. Viehbacher claimed the shareholders had expressed disappointment at Genzyme’s reluctance to pursue serious talks.

Genzyme urged its shareholders not to tender their shares to Sanofi unless advised by the board.

But in the end, Sanofi was able to gain full control of Genzyme after about 84.6% of Genzyme’s outstanding shares were tendered for $74 in cash, giving Sanofi ownership of roughly 77% of the shares on a diluted basis.

Bottom Line

You would be forgiven for assuming that unsolicited takeovers were a thing of the past, but some of the deals we’ve mentioned happened several years ago and are proof that such bids are here to stay.

Just recently, tech billionaire Elon Musk turned down an offer to join Twitter (NYSE: TWTR)’s board of directors after acquiring a stake of 9.2%, making him the company’s biggest shareholder.

His deal to take a board seat included an agreement to keep his stake in the company at not more than 14.9%.

Musk’s refusal to be part of Twitter’s inner circle has sparked rumors that he could orchestrate a hostile takeover of the microblogging platform.