Term Paper on "Hostile Take Over the Modern Business Nightmare"

Term Paper 24 pages (6689 words) Sources: 1+

[EXCERPT] . . . .

Hostile Takeover -- the modern business nightmare

Globalization means many fundamental changes to business practices around the world. Culture plays a significant role in defining standard business practices in a particular area of the world. As the world becomes more integrated, many businesses find themselves exposed to practices that are foreign to their culture. One of these business practices that are becoming more common is the take-over. When a takeover occurs, a bidder makes an offer to buy a company. This can be either friendly or hostile depending on the circumstances of the bidding process. This research will explore the legal, business, and political aspects of the hostile take-over.

A chose this topic because this practice is not common in my key area of focus. My academic focus is on Asian business, particularly the People's Republic of China. This practice is not a part of Asian business culture. The opportunity for a hostile takeover was not even possible in China prior to their decision to privatize business. In the past, the Chinese government owned many of the major business sectors. Sectors that were not privatized were under strict government control. The idea of a hostile take-over is a foreign concept in Chinese business. As they are exposed to western ideals and business practices, they must learn to assimilate this concept into their repertoire.

Changes in Chinese business culture are the key reasons for choosing to study the hostile take-over in light of globalization. China makes an excellent case for studying the effects of changing business practices in the face of greater international integration. Takeovers were not a normal part of Germany business culture prior to the formation of the EU. By comparing how these changes affected Germany and China, one could hope to gain insight into the affects of changing culturally significant business practices. The purpose of this study will be to use Germany and China as examples for the analysis of how changing global business practices affect businesses in those countries. It will use the hostile take-over as the lens through which to view these changes.

Significance of the problem

China and Germany provide excellent examples to view the affects of the hostile take-over and the affects on the companies involved and the political environment. Focusing on these problems will give the global business world a view of how global trends affect the individual players and the global business environment. As hostile takeovers become more prevalent in areas that had not previously experienced them there will have to be many adjustments in order to avoid conflict. Introducing the hostile take-over will mean making many legal changes, political changes and changes in ideology for everyone involved. The hostile take-over requires a highly developed level of negotiating skill. There is no doubt that the introduction of the hostile take-over the China and Germany will require many culturally significant business changes that could affect other areas of business culture as well.

Hostile takeovers are not the norm in China, and takeovers by foreign investors are a recent addition to the business structure in China. Germany has traditionally been a foreign investor in other countries, but it resisted the entrance of foreign investors into their own countries for nationalistic reasons. In some cases, the takeover can add the extra boost that a struggling company needs. There are times when a takeover has advantages for both companies. However, these types of takeovers are typically not hostile. In this case, the proper term would be a merger or partnership. A hostile takeover differs because one party does not accept the takeover offer. These scenarios can be predatory and highly destructive to the target company and the economy in general.

Company Self-Protection

The hostile take-over means the death of the company that is being taken-over. They will be liquidated and their assets integrated into the new company. This is something that no company wants for themselves. This study will shed light into the hostile take-over process and will offer companies some suggestions as to how to protect themselves from becoming a victim. It will examine the legal and business tactics used in countries where hostile takeovers are a common to devise a plan for avoiding hostile takeovers for companies in countries where they are not as common.

There are a number of tactics that can be used by the individual companies to make themselves less vulnerable to the hostile takeover. These tactics often include colorful names such as the "poison pill," "Nancy Reagan," and "Flip Over." Aside from their colorful names, these techniques can be applied to the target company to make them a less attractive target. These tactics will be discussed in Chapter II, as well as some examples of their use in action.

Government Protection against hostile takeovers

Hostile takeovers are not only a danger for the company that is being taken over, it can also pose a threat to national security. This is especially true in the face of a foreign hostile take-over. If the take-over occurs in a major business sector, it could have devastating effects on the economy. A foreign hostile take-over can be seen as foreign direct investment, which in many circumstances would be considered to be good due to the boost to the economy. However, in the case of a foreign hostile take-over, there is a loss of a domestic business. Therefore, the boost to the economy is negligible. Companies need to take measures to protect against hostile takeovers as a matter of national economic stability.

This study will examine the policies and situations in China and Germany regarding hostile takeovers in those countries. Hostile takeovers are becoming more popular and the number is increasing on a global basis. Countries need to develop strong policies to support the companies within them. The government has many options available to help protect the country from a hostile takeover that has a large-scale effect on the economy. This research will discuss a case in China where a foreign entity was able to gain a considerable market share of an entire sector, despite government controls to avoid such a situation. The Chinese Beer War is an excellent example of why governments need to devise strategies for protecting domestic companies from hostile takeovers.

Structure of the Thesis

This thesis will be a case analysis involving the methods, effects and remedies for hostile takeovers. It will focus on China and Germany. China will be an excellent target for study, especially where hostile takeovers of government-owned companies are concerned. Changes in the market system of China have opened up many opportunities for investment in the country. As a result, it has also opened up opportunities for predatory takeover attempts as well. Germany has not been the target of takeover attempts in the past due to their dual board system. A hostile takeover was too complicated in the past. Recently China and Germany have been the targets of hostile takeovers of several of their major businesses. This study will focus on the policies and procedures that are in place to control or prevent hostile takeovers. It will be divided into the following five chapters.

Chapter 1 will focus on gaining thorough understanding of the hostile takeover. It will analyze the various types of takeovers and their effects on the companies involved. It will also examine the macro effects on the economy. This chapter will examine several case studies and the effects that they had on the economic outlook.

Chapter Two will examine some of the strategies used to avoid hostile takeovers. It will discuss the pros and cons of each tactic. It will examine case studies where these tactics have been used, and their success at avoiding a hostile takeover. Chapter Three will examine how to decide which is of these methods is the best method for avoiding a hostile takeover. It will examine the many variables that could effect the success or failure of these tactics in various circumstances.

Chapter Four will discuss the necessity of government support through policy in protecting the companies within its boundary from a hostile takeover. It will focus on policy suggestions that will help governments devise policies to help thwart hostile takeovers within their boundaries. Chapter Five will summarize the findings and results of the study. It discusses the various findings of the research and its implications for companies and the countries in which they reside.

Chapter I - Introduction

Analysis of the Methods of Hostile Take-Over take-over occurs when one company (the bidder) purchases another company. There are two basic types of takeovers. In a friendly takeover, the acquiring company will inform the board of the offer beforehand. The company has the ability to accept or reject the offer. The shareholders and their equity is the key determining factor in many of these cases. A takeover is hostile under two scenarios. The first is if the board rejects the offer and the bidder continues to pursue the takeover anyway. The second scenario that is considered to be a hostile… READ MORE

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