Hostile Takeover – A Forced Acquisition and Its Defences – By Ronit Khandelwal and Palash Thakkar

Hostile Takeover – A Forced Acquisition and Its Defences

Ronit Khandelwal  and Palash Thakkar
3rd Year law student, Nirma University


The term “Hostile takeover” has made hue and cry in the media and has been in spotlight since the hostile takeover of Twitter led by Elon Musk which took place last year. The method devised by Elon Musk is Bear Hug strategy. In response to the offer made by Mr. Musk Twitter commenced the Poison Pill strategy to prevent the hostile takeover of the company. The variables that lead to a hostile takeover from the acquisition side frequently overlap with those that attribute to any other takeover, such as believing that a company is significantly undervalued or seeking to gain access to a company’s brand, operations, technology, or industry foothold. Hostile takeovers may also be strategic moves by activist investors seeking to change the way an organization runs.

What is Hostile Takeover?

A Hostile Takeover occurs when a firm or activist shareholder attempts to obtains a control of the target company by bypassing the company’s management and board of directors and going straight to the shareholders.

In other words, a hostile takeover occurs when a party takes command of a majority of the target company’s shares without the target company’s management or promoter group’s assent.

Methods and Techniques of Hostile Takeover

  • Proxy Contest

A proxy contest is a strategy employed in hostile takeovers, however it also serves as a good illustration of shareholder activism. It’s essential to keep in mind that shareholders don’t always need a sizable sum of money to initiate a proxy Contest.

In a proxy contest, the acquirer persuades the present shareholders of a target company to vote against the current management and in favour of new management, facilitating the acquisition of the company. By way of illustration, let’s assume that Company A effectively convinces the shareholders of Company B to use their proxy votes to elect a new board of management that is more favourable to the purchase than the current board, which is hostile to the takeover.

  • Bear Hug

With the bear hug strategy, the potential acquirer sends a letter to the target company’s CEO and board proposing to acquire the company’s shares at a significant premium price. By doing this, the acquirer places the target firm in a position where the CEO and board have very little space to oppose the takeover of company since doing so might bring liability on the management, since the acquisition is in the best interests of the company’s shareholders.

  • Tender Offer

A tender offer is a strategy in which acquirer offers to purchase the stock shares from the shareholders of target company at a premium price i.e. more than market price. We can further understand this concept through an example: “Company A” which is an acquirer reaches out the shareholders of Company B to purchase their shares (current market price is Rs.100) at a price of Rs.150.

The main goal of tender offer is to acquire enough voting rights so that acquirer can have significant control over Target Company.

Strategies to stop Hostile Takeover

  • Poison Pill strategy – The company Watchtell used the poison pill strategy for the first time in New York in the 1980s.  In this strategy Shareholders of the targeted firm are given the option of purchasing shares at a reduced price by using the poison pill technique. This strategy is typically employed when the acquirer’s share price reaches a specific level and other shareholders are given the right to buy more shares.

With this strategy, the acquirer’s stock in the firm substantially decreases, making an acquisition unfavourable for the acquirer. This shareholder makes sure that management is in control and safeguards the company’s minority owners.

There are mainly 2 types of poison pill approaches

The Flip-in poison pill approach – Under this approach, all shareholders, excluding the acquirer, are given the option to purchase shares at a reduced price, significantly diluting the acquirer’s ownership stake with each new share.

 The Flip-Over Poison Pill approach – Under this approach, owners of the target firm are permitted to acquire shares of the acquiring company at a significantly reduced price. The shareholders that agree to acquiring company’s bid may exercise their rights in the acquiring firm. This enables them to buy their shares as well. While dilution still occurs, but in the acquiring business, this is the exact opposite of a flip-in.

  • White knight strategy – – This strategy is used when the target company is in a position where it cannot resist off acquirer, it may seek for a friendly company to acquire a controlling stake in the business. Prior to the acquisition.
  • Green mail strategy – Greenmail refers to “targeted repurchase”. In this strategy to stop the takeover company purchase its own share from an individual buyer generally at a premium price.
  • Crown Jewel strategy – In a crown jewel strategy, a clause in the bylaws of the company mandates the sale of the most valuable assets in the event of a hostile takeover, making the firm less appealing as a target for an acquisition. This is often seen as the final line of defence.
  • Employee Stock Option Plan Strategy- In this strategy, the company creates an employee stock ownership programme (ESOP) through the use of a tax-qualified plan in which the employees have a sizable stake in the business. Workers could be more inclined to support management. As a result, this can be an effective defence.                               

Laws on Hostile Takeover in India

In India, takeovers are regulated by the 2011 SEBI (Substantial Acquisition of Shares and Takeovers) Rules, commonly known as the takeover code. According to the code, an acquirer is someone who directly or indirectly obtains shareholding in, voting rights over, or control over a target firm, either personally or via another person.

Moreover, Rule 3 of this code permits the acquisition to do a public offering if the acquirer wishes to get more than 25% of the voting rights in the target firm.

This code, however, did not distinguish between hostile and friendly takeovers and did not offer any legal protection against hostile takeovers. Moreover, there were no conditions for hostile takeovers in this code, which defeats the purpose of such a bid. India did not wish to participate in shark- bait takeovers even though there is no formal rule prohibiting takeovers here. One of the causes might be the conventional organisational structure of Indian enterprises, where promoter control of companies is more common than management-driven strategy.

Some Important Cases of Hostile Takeover in India

  • In 1983, A businessman Swaraj Paul of London sought to buy the equity of two Indian companies—Escorts Ltd. and DCM—and take over their administration. After lengthy legal processes, the parties eventually came to an agreement, and Swaraj sold these firms’ shares to their promoters at a price that was agreed upon.
  • In 1998, India Cements Ltd offered to buy Raasi Cements Limited outright for 300 rupees per share, while the share’s market price was just 100 rupees. Investors in this case felt duped since the promoters themselves sold their shares to the acquirer, giving them little choice but to sell their shares to the acquirer in an open offer.
  • In 2008 Emami paid Rs. 6900 per share to purchase 24% of Zandu from Vaidyas, the company’s co-founder. Parikh, a different co-founder, also received an open offer for a 20% interest in the company. After efforts to preserve the firm, Parikh surrendered their 18% ownership interest as well. Emami then paid 750 crore Rupees to purchase the remaining 72% of the company.
  • In 2000 Abhishek Dalmia made a public offer to purchase 45% of the outstanding shares of Gesco Corporation for a price of 23 rupees per share. Until the promoters of Gesco and the Dalmia group announced that they had reached a peaceful settlement in the battle for Gesco, the transaction that was entered into turned into a drama of a hostile takeover, with the former buying out the Dalmias’ 10.5% stake at 54 per share for a total consideration of 16 crores.
  • In 2012 Subhash Chandra of the Essel Group aimed to take control of the infrastructure firm Iragavarapu Venkata Reddy Construction Limited (IVRCL). Just 11.2% of IVRCL was owned by the target company’s promoters. After purchasing a 10.7% interest in IVRCl, Subhash Chandra’s Essel Group decided to reverse course and sell its shares in the target firm.


In the era which we are living, hostile takeovers have become a trend, so it’s very important for Micro, small and medium businesses (MSMEs) to have proper mechanisms to prevent such eventuality which can be detrimental to such company’s goodwill. Hostile takeovers would remain, it’s a reality, MSMEs and companies should either understand the contributors behind them and invest in pre-emptive shareholder value operations, assessing deficiencies, and leveraging in survival mechanisms. It is pertinent to note that each and every hostile takeover aren’t mala fide, Infact some of such takeovers enhance shareholder value. So it is upon the board of directors and those in the position of power in the company.


Hostile Takeover In India: An Analysis, YLCC (Mar. 13, 2022),’

The 5 Defences Against a Hostile Takeover, (June 22, 2022),

Celso Trinidad, Hostile Takeover, Definition, Measures of Central Tendency (Oct. 27, 2019),

Adani Group vs NDTV: The tale of hostile takeovers in Indian corporate industry, Mint (Aug. 24, 2022),

Nitin Kumar, Hostile Takeover: Definition, Examples, How it Works, (Nov. 7, 2022),


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