Abstract
Hostile takeovers have long been a battlefield in corporate governance, where companies struggle to defend themselves against unsolicited acquisition attempts. But what if artificial intelligence (AI) could change the game? Imagine a world where companies can predict, assess, and counteract takeover threats before they even materialize. AI is no longer just a tool for automation, it’s a powerful weapon in M&A strategy, offering real-time analytics, shareholder tracking, and legal insights to help companies stay ahead of aggressive acquirers.
This article dives into the AI-driven transformation of corporate defences. But with great power comes great responsibility. Can AI-driven takeover predictions manipulate markets or create unfair advantages? Should companies disclose AI-powered defense strategies to shareholders? And what happens when AI-based stock dilution strategies impact minority investors? These are just some of the ethical and legal dilemmas explored in this article.
Introduction
A hostile takeover occurs when an acquiring company attempts to gain control of a target company without the consent of its management. These takeovers are usually executed through proxy battles, creeping acquisitions, or tender offers. However, with the growing influence of artificial intelligence (AI) in corporate governance and financial markets, AI can play a crucial role in detecting potential takeover targets and assisting companies in implementing defensive strategies.
Tender Offer: The acquiring company proposes to purchase shares directly from shareholders at a premium price. A tender offer is a public bid to acquire some or all of a corporation’s equity shares. These offers are usually announced openly, inviting shareholders to sell their shares at a predetermined price within a specified timeframe.[1]
Proxy Fight: The acquiring company convinces shareholders to remove the target company’s management and appoint executives who will support the takeover.
Proxy fights are typically launched by discontented shareholders seeking changes in a company’s leadership or policies. In such battles, shareholders collaborate with others to leverage their voting power to influence management and the board of directors. This is often done by voting against board members during the annual general meeting (AGM) to exert pressure for change.
A notable example is the proxy battle involving Guyana Goldfields, where the company lost to its shareholders. As a result, two newly appointed independent directors joined the board, while two long-serving independent directors stepped down.[2]
Creeping Acquisition: The acquiring company slowly purchases shares in the open market to gain control without triggering regulatory scrutiny. In mergers and acquisitions (M&A) a Creeping Takeover, also known as Creeping Tender Offer, is the gradual purchase of the target company’s shares. The strategy of a creeping takeover is to gradually acquire shares of the target through the open market, with the goal of gaining a controlling interest.
A well-known example of a creeping tender offer is the case of Porsche and Volkswagen. Between 2005 and 2008, Porsche gradually acquired shares in Volkswagen without immediately disclosing its intent to take control of the company.
However, the financial crisis disrupted Porsche’s acquisition plans, preventing it from successfully taking over Volkswagen Group. Ultimately, in August 2012, Volkswagen Group acquired full ownership of Porsche, making it a wholly owned subsidiary.[3]
[1]National Stock Exchange of India,Tender Offer FAQs, NSE India, https://www.nseindia.com/trade/tender-offer-faqs
[2] Corporate Finance Institute, Proxy Fight, CFI, https://corporatefinanceinstitute.com/resources/accounting/proxy-fight/
[3] Corporate Finance Institute, Creeping Takeover, CFI, https://corporatefinanceinstitute.com/resources/valuation/creeping-takeover/