How does a hostile takeover work in practice?

A hostile takeover occurs when an acquiring company attempts to purchase a target company against the wishes of its board of directors and management. Here's how it typically unfolds:

**Initial Approach:**
The acquirer identifies a target company and believes it can be purchased at a favorable price or that the target is undervalued. Rather than negotiating with management, the acquirer bypasses them.

**Public Offer:**
The acquirer makes a public tender offer directly to the target company's shareholders, offering to buy their shares at a premium price (usually 20-40% above current market price).

**Shareholder Vote:**
Shareholders decide whether to accept the offer. If enough shareholders tender their shares (typically 50%+ for control), the acquisition succeeds.

**Defense Mechanisms:**
Target companies may employ defensive strategies:
- **Poison Pills**: Issue rights that dilute the acquirer's stake
- **White Knights**: Seek a friendlier alternative buyer
- **Golden Parachutes**: Expensive severance packages that increase acquisition costs
- **Crown Jewels**: Sell valuable assets to become less attractive
- **Pac-Man Defense**: The target attempts to acquire the aggressor

**Regulatory Review:**
Authorities may block deals if they create monopolistic concerns.

**Outcome:**
Success depends on shareholder support, available financing, regulatory approval, and effectiveness of defensive tactics.

A hostile takeover is one of the most aggressive tools in the corporate landscape. It occurs when a buyer attempts to acquire another company against the wishes of the board and management. Unlike friendly mergers, where all parties work constructively together, hostile takeovers often develop into bitter conflicts between the attacker and the defender. Such power struggles can also be observed in the crypto industry, especially when Bitcoin miners pressure competitors. However, new coins like Sponge V2 take a different approach: they focus on convincing investors through persuasion rather than engaging in aggressive acquisitions.

Strategic Goals Behind Hostile Takeovers

The motivations for a hostile takeover are diverse but follow a clear pattern. The potential buyer typically tries to eliminate an inconvenient competitor, expand their market share, realize cost savings, or acquire an undervalued company at a favorable price. A takeover attempt becomes particularly attractive if the buyer believes they can significantly increase the company’s value through restructuring and efficiency gains.

Three Methods of a Hostile Takeover

Experience shows that there are various ways to carry out a hostile takeover:

Tender Offer: This is the most common method. The buyer offers shareholders to sell their shares at a price well above the current market value. This bypasses the board and aims to gain control by purchasing a majority of shares.

Gradual Market Purchases (Creeping Takeover): Here, shares are gradually bought in small amounts on the stock exchange. The buyer acts discreetly and initially in secret. Only after acquiring a significant stake does the attacker publicly emerge and attempt to influence the board.

Proxy Fight: In this strategy, the buyer bypasses management entirely and instead negotiates directly with the supervisory board and shareholders. The goal is to have them vote to dismiss the current board and replace them with new leadership favorable to the takeover at the next general meeting.

Defense Measures Against a Hostile Takeover

Once a takeover attempt is underway, management has an arsenal of defense strategies. One of the most well-known measures is the so-called “poison pill”: the company can issue new shares to make the takeover more expensive and less attractive. Another option is to sell off the most valuable assets—an action that makes the offer significantly less appealing.

At the same time, the threatened management often seeks a so-called “white knight”: another company that is friendly to management and acts as an alternative buyer. Simultaneously, the board tries to mobilize key shareholder groups and persuade them to oppose the hostile takeover. Another standard tool is a public media campaign, where management argues against the takeover bid with compelling reasons.

The Commerzbank-UniCredit Scenario as a Case Study

A recent and instructive example of how a hostile takeover unfolds is the attempted acquisition of Commerzbank by the Italian banking giant UniCredit in fall 2024. It exemplifies how such “aggression” occurs in multiple phases: UniCredit initially announced plans to acquire significant shares in Commerzbank, prompting the German management to immediately initiate defense measures and publicly oppose the move.

What is particularly interesting is the initial situation: Commerzbank shares are widely distributed among many shareholders, giving UniCredit a strategic advantage. However, the German bank also has classic defense mechanisms. The outcome of this power struggle remains uncertain, but the broad dispersion of shareholders currently seems to favor the Italian banking group.

The Commerzbank example illustrates that a hostile takeover is not just a theoretical construct but a real-world phenomenon in modern finance. It shows how management, shareholders, and potential alternative buyers interact and what strategies are employed to defend against a hostile takeover.