Unsolicited Bid Meaning Avoidance Example

Rajeev Dhir is an experienced journalist with a background in broadcast, print, and digital newsrooms.

An unsolicited bid is an offer to purchase a company that is not actively seeking a buyer. It may also be referred to as a hostile bid if the target company does not want to be acquired. Unsolicited bids occur when a potential acquirer sees value in the target company.

Key Takeaways:

– An unsolicited bid is made to purchase a company not actively seeking a buyer.

– Unsolicited bids are also referred to as hostile takeovers.

– Companies make unsolicited bids to control market share, increase profits, and limit competition.

– A company may reject the offer or set up an employee stock ownership plan to avoid being the target of an unsolicited bid.

An unsolicited bid occurs when a potential acquirer expresses interest in a target company and makes an offer to purchase it. This bid is initiated by the acquirer, not the target company. Sometimes, news of an unsolicited bid can lead to other bids and start a bidding war or takeover fight.

Unsolicited bids can involve both private and publicly-traded companies. In the 1980s, many bidders recognized the potential for profit in undervalued or mismanaged companies, leading to an increase in these kinds of bids.

An unsolicited bid is different from a solicited bid. With a solicited bid, the target company actively seeks a purchaser and wants to be acquired. These bids are often referred to as friendly takeovers and are approved by the management of both companies.

The amount Vodafone paid for Germany’s Mannesmann in 2000, after its original unsolicited offer was rejected, was $180.95 billion. This is considered one of the world’s largest acquisitions.

Companies may make unsolicited bids with the intention of controlling market share, profiting from expected growth, accessing proprietary technology, preventing competitors from taking advantage, or acquiring the target company to break it up.

To avoid or fight off an unsolicited bid, a vulnerable company can reject the offer outright. If that doesn’t work, they may threaten to resign, forcing the acquirer to assemble a new management team, which can be expensive. Another defense mechanism is the poison pill, where shareholders buy more company stock at a discount, making it more difficult for the bidder to realize the unsolicited bid. Creating an employee stock ownership plan allows employees to buy shares and vote alongside management on important decisions.

An example of an unsolicited bid is Company ABC making an offer to purchase Company DEF for $1 billion. Company DEF rejects this offer, and ABC comes back with a $1.4 billion bid. Company XYZ then makes an unsolicited bid of $2 billion, which is accepted by DEF, resulting in a merger with XYZ.

The difference between an unsolicited bid and a solicited bid is that in a solicited bid, the target company actively seeks a buyer and wants to be sold. In contrast, in an unsolicited bid, the target company is not actively seeking a buyer and may not be interested in being acquired.

A hostile takeover occurs when a company or investment firm tries to acquire a company that does not want to be acquired. This is usually done by bypassing the management team and going directly to the shareholders or buying a large percentage of the company’s shares to gain control.

A merger occurs when two companies combine their resources to create a new company. An acquisition happens when a company buys another company and absorbs it into its own operations.

Two companies merging combines their resources and advantages to form a new company, while in an acquisition, one company buys another and folds it into its operations.