Hostile corporate takeovers can have major implications for shareholders, executives and employees alike. When an outside party acquires stock to secure a majority interest in a company without the approval of existing shareholders, the consequences can be devastating.
In some cases, existing shareholders and executives may take steps to halt a hostile takeover if they spot questionable stock trends before an outside party acquires a majority interest. They might ask another firm that is not as hostile as the one acquiring stock to intervene and purchase an interest in the company.
This “white knight” strategy is one possible way to avoid an imminent hostile takeover, but it can potentially lead to litigation in some cases.
The hostile party could allege misconduct
Outside entities attempting to conduct a hostile takeover may have lawyers on standby, ready to initiate litigation in response to any type of organized pushback. If a white knight solution involves halting stock sales already in progress or diluting stock, the hostile party seeking a controlling share of the business might take legal action.
While litigation intended to derail a defense strategy in a hostile takeover situation can be complex, costly and lengthy, court delays can be helpful.
A defense strategy that leads to a lawsuit can ultimately protect a business from an acquisition attempt that could lead to resource liquidation and business dissolution. When shareholders, executives and other interested parties note an alarming trend in stock sales, acting quickly to intervene and preparing for litigation can reduce the risk of a hostile takeover succeeding.
Reviewing possible responses to a hostile takeover attempt with a complex commercial litigation lawyer can help executives, shareholders and other interested parties evaluate their options. White knight strategies and other attempts to subvert hostile takeovers can trigger litigation, and business leaders usually need to be ready for pushback accordingly.