What Are a Company’s Defenses Against a Hostile Takeover?
When JetBlue attempted a hostile takeover of Spirit Airlines earlier this week, it was perhaps the first time in several years that many readers heard that term in the news. A 2020 article from Harvard Law declared that 2019 saw less than 15 hostile takeover offers in the U.S. Compare that to 1988, when there were 160 separate instances. Antitrust laws and legal precedents, according to Harvard Law, make it harder for a larger company to take over a smaller entity without some level of cooperation.
Hostile takeovers typically occur during a market downturn, which explains why the late ’80s brought a rush of such attempts. Fortunately, today’s companies have several defenses against a hostile takeover, some of which Spirit Airlines deployed this week to prevent the acquisition.
First, the budget airline asked shareholders to reject the proposal, which would have resulted in an all-cash buy-out of $33 a share — or a tender offer of $30 per share. In a May 19 statement published on CNBC, Spirit said that it “believes JetBlue’s proposals and offer are a cynical attempt to disrupt Spirit’s merger with Frontier, which JetBlue views as a competitive threat.”
Putting a hostile takeover up for shareholder vote is one potential way to prevent the acquisition, according to Harvard Law. But a combination of tactics may work best in many situations.
Trust the Justice Department
Relying on the Justice Department and antitrust laws can, in some cases, be enough to prevent a hostile takeover. For example, JetBlue already has a partnership with American Airlines which, Spirit said, could cause regulators to block the Spirit acquisition.
Rely on Shareholders
One effective course of action, according to Harvard Law, is for the company’s board to establish a position that limits accumulation of any tender offer — or accumulation of a large position — without the board’s approval. Spirit is using this tactic.
Even though Spirit board members believe the odds of a successful takeover are slim-to-none, they don’t have to leave it to chance. According to Harvard Law, companies facing a hostile takeover can use legal defense to help. Corporate lawyers understand the antitrust regulations and the company’s best defense tactics.
Develop an Emergency Communications Strategy to Communicate Transparently with Shareholders and the Media
Any company in the midst of a hostile takeover wants to keep the public — and more particularly, shareholders — on their side. Developing a calm, cool, clear and factual communications plan that includes proactive public relations can help keep stock prices stable and, potentially, paint the aggressor in a negative light.
Develop Credible Alternatives to Satisfy Shareholders
In Spirit’s case, the credible alternative to a takeover would be a merger with fellow budget carrier Frontier. Although Spirit stock is down to $19.07, more than 30% below its 52-week high, a merger with Frontier would create a “discount airline behemoth” that would be the fifth-largest U.S. carrier, according to CNBC.
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