You didn’t work for years to make your dream of building a large corporation into a reality just so outside entities could one day make an aggressive move to pull the rug out from underneath your feet. All large California businesses encounter challenges on occasion — some financial, others involving partner relationships or shareholders. One of the most stressful things you might deal with as the owner of a corporation is a hostile takeover and proxy fight.
A hostile takeover occurs when an outside party tries to acquire a corporation either by offering to buy out all shareholders or convincing them to participate in a proxy fight. The latter is a plan of action where shareholders would agree to vote out senior executives to make it easier for the acquiring entity to take over the corporation.
When shareholders disagree with a management decision
A proxy vote (or battle) might also occur if shareholders have dissatisfaction with the policies or decisions of the executive board of directors in a large corporation. Executing a proxy vote means that one person is casting a vote on behalf of another, who is absent or not interested in voting.
If a hostile takeover is threatening your corporation, a proxy battle might ensue. In such circumstances, several shareholders would convince other shareholders to allow them to vote as their proxies to achieve their desired end, which might be to push out executives, leaving the company vulnerable to a hostile acquisition.
Ways to combat a hostile takeover
If you are an owner of a large corporation that is at risk for a hostile takeover, you may want to develop strategies to keep your business intact. In the past, corporate executives facing similar circumstances have sold stocks to shareholders at a discount, which makes the stock less attractive. Hence, the corporation is then less vulnerable to forced acquisition.
Another way to deter a hostile takeover is to sell the corporation’s most valuable assets. This is known in the business industry as a “crown jewel defense” and is often effective. Finally, the target company may decide to buy back shares at an appreciated value from the acquiring company to avoid a hostile takeover.
Explore your options as soon as there are signs of trouble
Waiting too long is often the proverbial straw that breaks the camel’s back if your business is being threatened by a hostile takeover or proxy battle. The more you know ahead of time about business litigation and takeovers, the less vulnerable your corporation might be. Being proactive is often the best way to avoid problems or to swiftly resolve them when they arise.