Hostile Takeovers

Another market force that has in recent years threatened corporate management to perform in the best interest of the owners/shareholders is the possibility of takeover, that is, the acquisition of the (target) firm by another group (i.e. acquirer) that is not supported by management. Such takeovers typically occur when the acquirer is of the view that’ die target firm is undevalued due to poor management and that its acquisition at its current low price may result, in the enhancement of its value (i.e, share price) through restructuring its management, operations and financing. The constant threat of a takeover would motivate management to act in the best interests of the owners despite the fact that techniques are available to defend against a hostile takeover.

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