Hostile Takeover

A hostile Takeover
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Part 1
A hostile takeover refers to a merger or acquisition of one company (Target Company) by another (acquirer) against the wishes or approval of the board of directors (usually the management) of the target company. A hostile takeover occurs despite the resistance by the target firm’s management as the stronger business absorbs the target company in terms of market control. In May 2015, Teva Pharmaceuticals Industries completed acquisition of Auspex Pharmaceuticals in a Hostile Takeover for $3.5 Billion in the corporate control that has been experienced in the European Market in recent times. Teva sought to increase its Neurology unit as well as its product offering (Wainer, 2015).
Teva investors apparently believed that important shareholder value would be produced if it acquired Auspex due to potential synergies. This was confirmed after a substantial short increase in Teva shares. Acquirers usually tend to use overvalued equity to buy the target company’s share and in the process often ends up doing an overpayment. This makes the stock prices to underperform after the subsequent acquisition whereby they may tend to decline in their price level (Wainer, 2015).
In Mergers and Acquisitions, the acquisition target’s stock price usually does not equal the value being paid by the acquirer. For example where company A is planning to buy stock for company B at $10 a share in a two months’ time,...