"the target company makes a counteroffer to the acquirer and begins purchasing shares of the acquirer, threatening to purchase the raider themselves"
How is this possible? I'm assuming that the target firm will be in a lesser condition than the acquiring firm to be subjected to a Hostile Take-over, is this wrong?
So when talking about the counter offer what we must understand is that it is a two-pronged approach. Either one, the acquiring company is much smaller but has larger "Sharks" backing it or two, the target company is backed by a promoter with a large chache of funds. In both states, the target company will have a higher liquidity over the acquirer to go in and submit a counter offer. There also exists a situation in which the target company in collaboration with a "white knight" may counter the acquirer.
Another Question, how does the 'Golden Parachute' strategy thwart a take over? It seems like it only ensures security for the key members of the target organization.
So the Golden Parachute strategy works on the principle that the Key Managerial Personnel of the company, know its functioning inside out and are the people without whom the company is a "dead investment" because without these people it will yield no return on investment. So if your company cannot run without these people the acquirer wouldn't risk making a loss on their investment.
Exemplary Article Motabhai. Well studied and explained. Proud of you 👍
Hey Naman, great article, I had a question:
"the target company makes a counteroffer to the acquirer and begins purchasing shares of the acquirer, threatening to purchase the raider themselves"
How is this possible? I'm assuming that the target firm will be in a lesser condition than the acquiring firm to be subjected to a Hostile Take-over, is this wrong?
Hey Ishan, Thank you!
So when talking about the counter offer what we must understand is that it is a two-pronged approach. Either one, the acquiring company is much smaller but has larger "Sharks" backing it or two, the target company is backed by a promoter with a large chache of funds. In both states, the target company will have a higher liquidity over the acquirer to go in and submit a counter offer. There also exists a situation in which the target company in collaboration with a "white knight" may counter the acquirer.
Your assumption isn't wrong at all.
Another Question, how does the 'Golden Parachute' strategy thwart a take over? It seems like it only ensures security for the key members of the target organization.
So the Golden Parachute strategy works on the principle that the Key Managerial Personnel of the company, know its functioning inside out and are the people without whom the company is a "dead investment" because without these people it will yield no return on investment. So if your company cannot run without these people the acquirer wouldn't risk making a loss on their investment.
Oh alright so it's similar to the Crown Jewel strategy except it utilizes Human Resources as compared to others