The Impact of Bid Defences in Hostile Acquisitions

Abstract

An array of defence strategies is available to help companies defend themselves against unwelcome takeover attempts. However, such takeover defences have been the subject of some controversy, both in terms of their motivations and their effectiveness. This paper presents an empirical investigation into the use and impact of post-bid takeover defences within recent UK hostile acquisitions. Specifically, using data from 56 contested takeover approaches, the study explores the impact of individual defence tactics on the eventual outcome of the takeover attempt, the bid premium offered to shareholders, and the level of executive retention within the target company. Statistical analysis reveals that ‘white knights’ and ‘management buy outs’ were the most effective takeover defences and suggests that other commonly employed defence tactics, including the lobbying of stakeholders and regulatory appeals, have a weak and indecisive impact on bid outcome. Furthermore, once in a contested situation, the capacity of executives to use takeover defences either to entrench themselves or to boost the bid premium for shareholders was found to be limited. The findings provide important insights for executives faced with a takeover approach.