What Is Hostile Takeover – A Guide To Aggressive Corporate Acquisitions

Key Highlights

• A hostile takeover happens when you acquire more than 25% of the target company. You have to launch an open offer for at least 26%.
   
• There are mainly 4 types of hostile takeovers. They can range from Bear hugs, which are ruthless, to simple tender offers. 
   
• If the acquirer has more than 5% of holding, they must report within 2 working days.  

In a normal scenario, one company acquires the other company with management approval and proper legal paperwork. However, in a hostile takeover, one company acquires another without the approval of the target company’s management.

For example, Company A wants to acquire Company B, which is valued at ₹500 crore. Company B’s management refuses the offer, but Company A goes directly to shareholders and offers a 20% premium, which is ₹600 crore, to gain control.

Here’s what happened:
 

This is the perfect example of ‘Ghee agar seedhi ungli se na nikle, toh use tedhi ungli!’  Hostile takeovers often rely on shareholder power. Let’s learn more about this in this blog.

How Hostile Takeovers Work?

When a company’s board refuses to sell, an acquirer has to get creative (‘tedhi ungli’). Instead of taking permission from management, the bidder appeals directly to shareholders or uses the market to gain control. The three most common methods are tender offers, proxy fights, and creeping (open-market) acquisitions. Let’s discuss each in this section.

1. Tender Offer

In a tender offer, the acquirer publicly announces that it is ready to buy shares from existing shareholders at a premium price. The premium price is usually much higher than the stock’s current market value. The aim is to tempt enough shareholders to sell so that the buyer gains a majority stake (often 50% or more shares).

For example, a company’s stock is trading at ₹500 per share. A rival offers ₹650 in cash per share to all shareholders. If enough investors tender (sell) their shares, the acquirer will get control without management’s approval. 
 

This method is common in the US, but in India, it is tightly regulated by the SEBI Takeover Code (2011). It sets rules on pricing, offer size, exemptions, and timelines so that no unfair trade happens.

2. Proxy Fight

A proxy fight happens when the acquirer can’t buy enough shares outright. So, he tries to replace the target company’s board of directors. He convinces shareholders to vote for their preferred directors at the annual general meeting. Eventually, he will gain control indirectly.

For example, Mansi Industries’s acquirer owns only 15% of shares. So, the acquirer might persuade another 40% of shareholders to vote against the current board. With a new board, the company becomes more open to approving the takeover.

An open offer is a type of public offer. It is required when an acquirer offers to buy shares from existing shareholders at a fixed price. 

The table summarises the example given
 

Proxy fights are less common in India because most listed firms have strong promoter families and they have high controlling stakes. However, they remain a powerful strategy in markets like the US and Europe.

3. Open-Market (Creeping) Takeover

In this approach, the acquirer buys shares directly from the stock market over time. By accumulating small chunks, the target’s management doesn’t get a hint of what is happening. 

For example, an acquirer buys 3% shares every few months without drawing attention. Once it crosses 25%, under SEBI rules, it must make a mandatory open offer for an additional 26%. 
 

This tactic was partly visible in the Adani–NDTV case (2022). Adani indirectly acquired a large stake through a loan-to-equity conversion and then launched a mandatory open offer.

4. Other Aggressive Tactics
    

This is the ‘actual tedhi ungli’ we were talking about before. It involves:
 

• Bear Hug: The acquirer makes an extremely generous public offer, often above fair value, and puts pressure on the target’s board to accept. If they reject it, the shareholders will suffer a loss as they were promised a big payday. ‘Paise hi paisa!’

For example, in 2007, Tata Steel offered 608 pence per Corus share, about 34% higher than the market price. This pushed Corus shareholders and its board to accept the deal.

• Greenmail: The acquirer buys a significant stake and threatens a hostile takeover. This forces the target to buy back those shares at a premium to make the threat go away. This can be costly, but it helps the target remain independent.

For example, in 1984, Sir James Goldsmith acquired an 8.6% stake in St. Regis and then sold it back to the company at a premium. This helped them earn a profit of $51,000,000 in just about a month. 

Legal & Regulatory Framework in India

Our legislatures are keen on protecting both the investors and the companies. That is why several laws, ranging from SEBI rules to the Competition Law, are introduced to set the boundaries. 

1. SEBI (SAST) Regulations, 2011 

Under SEBI’s SAST Regulations, 2011, any acquirer (or group acting together) who 

• Acquires 25% or more of the voting rights: It must launch a public open offer for at least 26% of the shares of the target company to public shareholders. 

In a public offer, an acquirer invites the general public to buy its shares or securities. In takeovers, it ensures all shareholders get a fair chance to sell their shares.

• Already holds between 25% and 75%: If the acquirer acquires an additional 5% or more in a financial year, then the open offer is required again.
   
• Acquires 'control': If it is done regardless of shareholding, it will require an open offer.

"Control" is broadly defined. Here, it includes the right to appoint a majority of directors or influence policy decisions through various means.