Corporate board members and shareholders of Texas corporations may want to consider whether their company has the appropriate mechanisms in place to help deter a hostile takeover by an outside party. While third parties will often gain ownership of a company by purchasing it outright, some may attempt to gain control by seizing ownership without the approval of the company's shareholders or board of directors.
Hostile takeovers usually involve a bidder trying to acquire a majority of a target company's stock, which bidders may do by offering to buy shares in the company at a higher price than the going market rate. Alternatively, a hostile bidder could convince a number of the company's shareholders to assign their voting rights to the bidder, which would then elect its own members to the company board of directors by using these proxies. Once a hostile bidder controls the board of directors, the bidder may then ensure that the sale of the company will be approved by the board.
Companies may try to slow down a takeover by proxy vote by staggering board member elections and requiring a super-majority shareholder vote to approve new owners. Corporations may also adopt bylaws that allow original shareholders to purchase additional shares for a discount once a new shareholder buys up a certain amount of stock, which would increase the number of shares in the company and dilute the percentage ownership interest of the new shareholder. Board members may also try to "greenmail" new shareholders by offering to buy back their shares at a price that is above market rate.
Board members may also prevent or slow down hostile acquisitions by engaging the prospective buyer in legal actions, such as by alleging securities violations. A corporate attorney can outline other ways in which a client may prevent or combat a hostile takeover through legal measures.
Source: The Houston Chronicle , "Grygor Scott", What Could Make a Hostile Takeover Difficult?, December 01, 2014