Hostile M&A

A hostile M&A is distinguished from an ordinary M&A in that the merger and acquisition proceeds without the consent of the target company's management or major shareholders.

In this process, methods such as purchasing shares directly on the market or making a tender offer are used, and considerable costs may be incurred due to premium payments or legal responses.

In addition, because various defense strategies must be overcome, the acquisition procedure is complex, and the risk is high because the outcome is difficult to predict.

Nevertheless, it can improve management efficiency by replacing ineffective management, and it may also be expected to improve shareholder value.

It can also serve to strengthen competitiveness by promoting corporate restructuring.

The differences between a hostile M&A and a friendly M&A are as follows.

A tender offer is a representative method used in a hostile M&A to secure management control without the consent of the target company.

This refers to a method of securing a stake outside the market by directly proposing to shareholders that the offeror will purchase their shares at a set price during a set period.

A proxy contest is a competition waged during a hostile M&A in which the acquiring side and the existing management seek to secure voting rights at the general shareholders' meeting.

The management of the target company seeks to defend its current management control, while the acquirer obtains proxies from shareholders and engages in a vote contest in order to succeed in the acquisition.

This competition to secure proxies serves as a core strategy in hostile mergers and acquisitions, and it is an important procedure that may bring significant changes to corporate governance.

In a hostile M&A, market accumulation is a strategy of securing a stake by continuously purchasing the shares of the target company on the open market.

This method is an attempt to acquire control without the consent of management, and it is one of the methods frequently used in a hostile M&A.

This is a strategy of causing the attacking side to spend a large amount of acquisition funds for the M&A.

To keep investors from selling their shares, the company should borrow funds and pay large-scale dividends at a high payout ratio.

In addition, the company can remove the purpose of the hostile M&A by separating key assets and business divisions into a separate legal entity or selling them to a third party.

It can also use methods such as raising its shareholding ratio through treasury stock purchases, and having existing shareholders acquire preferred stock and warrants and then convert them into common stock or the like.

The company should arrange for directors to be elected at fewer than one-third of the total number of seats so as to delay the takeover of the board of directors.

It can also introduce a “golden parachute” strategy by newly establishing a provision under which, if the current management retires due to an M&A, a substantial amount in cash, stock options, and the like is paid in addition to severance pay, and the shares can be purchased at a fair price.

In addition to these, there are the use of cumulative voting, the shaping of public opinion, and litigation strategies.

The main purpose of a hostile M&A lies in securing control of the target company.

Because there are various methods, it is advisable to seek the advice of an attorney in the process of selecting one.

Drawing on extensive experience with the legal procedures related to hostile M&A, our firm provides comprehensive legal services throughout the entire process, from advisory work to litigation representation.

In addition, various professionals, including tax, corporate, and criminal attorneys, as well as certified public accountants, tax accountants, and labor attorneys, collaborate to systematically prepare a response strategy tailored to the client.

If you are facing difficulties with a hostile M&A, please feel free to request the help of a mergers and acquisitions attorney at Daeryun Law Firm at any time.