04 Aug What is a hostile takeover and what generally happens to the stock price of the firm being acquired in a hostile takeover? 

Part 1(a)

This is a discussion response. It needs to be between 200-300 words. With in text citations that are based in the United States and websites. Remember this is a response that you will be writing so lets add on to what was already stated not just restated.

• Part 1: What is a hostile takeover and what generally happens to the stock price of the firm being acquired in a hostile takeover? 

Hostile takeovers are the acquisition of a company going through the shareholders either by a tender offer or through a proxy vote; these are different from a friendly takeover because the Board of Directors does not approve of the transaction (CFI Team, 2019). It tends to be a more attractive investment, which means a troubled corporation will be under new leadership and direction (Berk, DeMarzo, 2019). Some Hostile takeovers tend to be because the corporation’s growth has become stagnant, and the acquiring company would help to change the corporation’s direction, which would add value to the corporation being taken over. The takeovers come in the form of tender offers, proxy votes, or special considerations; these include special dividends, dividend increases, share buybacks, and spinoffs which bring up the stock price (Hayes, 2022).

• Part 2: How does a hostile takeover affect the company’s stakeholders (shareholders, executives, employees, and society in general)? Is it usually beneficial or detrimental to these stakeholders? Why?

Stakeholders with an acquired company during a hostile takeover can have a good amount of uncertainty during a takeover. The fear of the unknown is high, and misinformation can be spread, creating high turnover (Gallup, 2022). It seems that with all the uncertainty surrounding a takeover for the stakeholder, it can be detrimental, and top talent may decide to find new positions that are more stable for them. Fears would be around organizational restructuring and the layoff of redundant employees.

References

CFI Team. (October 28, 2019). Hostile Takeover A proposed acquisition without the approval or consent

of the target company.

https://corporatefinanceinstitute.com/resources/knowledge/deals/hostile-takeover/

Berk, J. B., & DeMarzo, P. M. (2019). Corporate finance: The Core (5th ed.). Boston, MA: Pearson. ISBN:

9780135161159

Hayes, Adam. (May 7, 2022). What Happens to the Target Company’s Shares in a Hostile

Takeover?

https://www.investopedia.com/ask/answers/042215/what-happens-shares-company-has- been-object-hostile-

takeover.asp#:~:text=Key%20Takeaways,incentives%20to%20approve%20the%20takeo ver.

Gallup, Betsy. (Retrieved July 7, 2022). The Effects of Business Takeovers on Labor

https://smallbusiness.chron.com/effects-business-takeovers-labor-35770.html

Part 1(b)

This is a discussion response. It needs to be between 200-300 words. With in text citations that are based in the United States and websites. Remember this is a response that you will be writing so lets add on to what was already stated not just restated.

A hostile takeover is when a company or individual buys a large percentage of a company’s stock, and in doing so will have enough votes to replace the company’s board of directors and CEO (Berk & DeMarzo, 2019). Generally, a hostile takeover will lead to an increase in the stock price. This is because a change in management is typically viewed as an upgrade over the old management.

A hostile takeover of a company can be beneficial for shareholders as the threat of a turnover can increase their profit as the stock prices rise. For example, the stock may be trading at $50 per share currently, but when a hostile takeover is threatened, the stock price may increase to $75. The shareholder’s profit in this scenario as their stock increased $25. Although, “Hostile takeovers can often draw excess attention to a company and might stir up unease, upsetting the market, which could bode poorly for any stockholders” (Suh, 2019). Executives may have their jobs threatened as the acquiring company my decide to clean house, hire their own employees, or reorganize the company resulting in a loss of jobs.

An example of a recent hostile takeover is JetBlue. JetBlue is attempting to a takeover of Spirit Airlines. JetBlue offered Spirit $3.6 billion, or $33 per share. Spirit rejected this offer in favor of a lower offer from Allegiant, claiming that it is more likely to “win regulatory approval” (Koenig, 2022). Shareholders of Spirit are likely to benefit from the acquisition from JetBlue as the stock price is currently trading around $24, and JetBlue’s hostile takeover is for $30 per share.

References

Benzinga. (2022, May 21). JetBlue Airways launches hostile takeover bid for Spirit Airlines. Detroit Free Press. Retrieved July 7, 2022, from https://www.freep.com/story/money/business/michiga…

Berk, J. B., & DeMarzo, P. M. (2019). Corporate finance. Pearson.

Koenig, D. (2022, May 5). Spirit CEO says JetBlue wants to stop spirit-frontier merger. AP NEWS. Retrieved July 7, 2022, from https://apnews.com/article/business-hostile-takeov…

Suh, E. (2019, June). A guide to hostile takeovers. Policygenius. Retrieved July 7, 2022, from https://www.policygenius.com/investing/hostile-tak…