With the introduction of new regulations in the field of business – investment, legislators have been gradually abolishing business conditions, simplifying administrative procedures, and facilitating enterprises’ access to the market as well as their business development. In recent years, mergers and acquisitions (M&A) activities in Vietnam have been constantly increasing, particularly in the fields of retail, consumer goods, real estate,…. As a result, hostile takeovers began to emerge.
In simple terms, a hostile takeover occurs when the Acquiring company acquire most or all of the assets or equity of the Target company without their Board of directors’ consent. Accordingly, the identifying characteristics of a hostile takeover is the fact that the Target company does not want to engage in this transaction, and oftentimes the company’s Board of directors will employ a number of defensive tactics to contend with hostile takeover behaviors. A hostile takeover can be done by the Acquiring company through two common methods as follows:
Tender offer method. This is the form of hostile takeover carried out by directly acquiring shares from the Target company’s shareholders at a premium over the market price, in order to obtain a sufficient number of shares to influence and control the activities of the target company. The Acquiring company shall then elect a new Board of directors and assumes full control of the Target company.
Proxy fight method. In the general meeting of shareholders, especially for large public companies, shareholders usually authorize others to vote on their behalf. Taking advantage of this, the acquiring company shall convince the existing shareholders to use a proxy vote in order to oust the current board of directors of the target company and elect new members who will approve the acquisition transactions. On the contrary, the target company’s board of directors will also do the same to prevent this from happening, resulting in a proxy fight to nominate members to the board of directors.
Typically, a hostile takeover occurs when the acquiring company believes that the target company’s stock price in the market is far below its actual value, or the acquiring company wishes to own the brand, technology or the business of the target company.
However, hostile takeovers mainly take place in public companies with a diluted shareholder structure, in which each shareholder owns only a small number of shares. Therefore, there are not many hostile takeovers in Vietnam, instead acquisition transactions are mainly conduct on the basis of respecting the interests of both parties. Nonetheless, businesses should be alert, anticipate, and implement some defenses to limit the possibility of a hostile takeover.
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APRA LAW FIRM
Address: 7th Floor, 57 Tran Quoc Toan, Tran Hung Dao Ward, Hoan Kiem District, Hanoi City, Vietnam.
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