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Resisting the hostile takeover

Businesses in Michigan face a variety of threats. There are worries about the economy and how it will affect the business, issues with customers, government regulations and more. In some cases, the threat comes from other businesses.

A hostile takeover occurs when an acquiring company tries to gain control over a target company without the approval of the target company's board of directors. Acquiring companies can complete a hostile takeover in a variety of different ways. However, for the owners of the target company this can be an unwanted change.

The target company does have some options when it comes to defending against a hostile takeover. These maneuvers can help to avoid the takeover and help the original owners retain majority ownership over the company. These defenses include both reactive and preemptive defenses.

Reactive defenses are those that a company uses once a hostile takeover has been attempted. Reactive defenses include finding a white knight - another buyer for the company that better suits the original owners; purchasing stocks at a higher price than the acquiring company has offered; and selling assets that the acquiring company seems interested in.

Preemptive defenses are those that can prevent a hostile takeover in the first place. These defenses include having a provision that allows directors to purchase shares at a reduced price if a new shareholder acquires a certain percentage of the shares. This action will dilute the number of shares owned by the new shareholder and make it more difficult to take control. Offering large severance packages and staggering elections can also help to prevent a hostile takeover.

Source: Houston Chronicle, "What Could Make a Hostile Takeover Difficult?," Grygor Scott, accessed March 23, 2015

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