4 Defenses Against Hostile Takeovers in Connecticut

 Posted on August 06, 2024 in Business Law

A hostile takeover is when a corporation is acquired against the wishes of the company’s board of directors or management. There are different ways to perform a hostile takeover, all of which require complicated legal maneuvers.

An individual or company called the acquirer may want to execute a hostile takeover for a few reasons:

• Because the target company is undervalued and may therefore be profitable for the acquirer
• Because the acquirer wants ownership of the target company’s technology, product, brand, or other asset
• Because the acquirer wants to make changes in the company

In 2022, Elon Musk performed a hostile takeover of Twitter by first purchasing nine percent of the company’s shares and then issuing a generous tender offer to Twitter’s general shareholders. The company tried using the poison pill strategy, which will be explained below. However, because Musk’s offer was so much higher than the company’s value, Twitter’s board risked being sued by shareholders if it blocked the acquisition.

When a hostile takeover is done correctly, it can be difficult to stop. An experienced Connecticut corporate attorney, however, can use certain legal safeguards to protect against such a maneuver. This article will discuss four defenses against hostile takeovers.

Voting Requirements

In some cases, Connecticut law requires an acquirer to obtain support from a supermajority of shareholders. In simpler terms, this means that at least 80 percent of those who own shares of the target company must vote in support of the acquisition. This makes a hostile takeover more difficult because such a supermajority is hard to obtain.

Waiting Period

Another Connecticut statute imposes a waiting period of up to five years between becoming an interested shareholder and acquiring or merging with the target company. Because circumstances can change significantly over five years, this waiting period may discourage hostile takeovers.

Poison Pill

A poison pill is a well-known strategy sometimes used by companies trying to defend against a hostile takeover. It entails the target company selling its own shares to the public at a discounted price in the hopes of diluting the interested shareholder’s voting power. If it is successful, the acquirer will no longer be an interested shareholder, and a hostile takeover will have been avoided. However, this comes with disadvantages, like making the company less attractive to other potential shareholders.

Golden Parachutes

A golden parachute refers to significant financial benefits an executive receives if he or she is let go from a company in a takeover or merger. When a target company promises golden parachutes to its executives, it can make the takeover less attractive to the acquirer because of the reduction in assets.

Contact a Greenwich, CT Hostile Takeover Attorney

Hostile takeovers can be difficult to defend against without a sharp corporate law attorney. At Ivey, Barnum & O'Mara, LLC, we are experienced in both sides of acquisitions and mergers and are ready to defend your entity against a hostile takeover. Schedule a free consultation with a Greenwich, CT hostile takeover lawyer by calling 203-661-6000 today.