In this article, we look at the next phase of Elon Musk’s attempt to control Twitter – a so-called 'hostile' takeover.
The Next Stage In The Twitter / Musk Story – Hostile Takeover
Billionaire Elon Musk recently became Twitter’s largest shareholder after recently acquiring a 9.2 per cent stake in the social media company. Twitter then invited Musk to join its Board. Musk, however, announced that he would not be joining Twitter’s Board. Instead, last week Musk went down the hostile takeover route by offering to make Twitter Inc. private in an unsolicited deal valued at $43 billion. Musk offered to $54.20 per share in cash, which is 38 per cent above the price on April 1, (the last trading day before Musk went public) in the hope of winning-over shareholders.
What Is A Hostile Takeover?
A hostile takeover happens when one company acquires another without approval for a merger or takeover from the target company's management, and despite any objections from the Board. Hostile takeovers usually occur after the formal offer has been rejected and tend to apply to larger public companies. The acquirer seeks to achieve at least 51 per cent ownership in the target company's stock to gain control. Hostile takeovers are legal and may happen for reasons such as:
- The two companies may have failed to reach a merger agreement.
- Some investors may think the management of the company is mismanaging it or is not maximising shareholder value.
- The acquirer wants the target company’s assets or technology and distribution to strengthen its own business.
- Shareholders often benefit initially in hostile takeovers, e.g. in a tender offer, it may mean that the acquirer offers to purchase stock shares from the target’s shareholders at a higher price than the market rate to gain a controlling interest.
