What is a hostile take over?

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A hostile takeover is an acquisition in which the company being purchased doesn't want to be purchased, or doesn't want to be purchased by the particular buyer that is making a bid. How can someone buy something that's not for sale? Hostile takeovers only work with publicly traded companies. That is, they have issued stock that can be bought and sold on public stock markets. (Check out How Stocks and the Stock Market Work for more information.)

A stock confers a share of ownership in the company that issued it. If a company issued 1,000 shares, and you own 100 of them, you own a tenth of that company. If you own more than 500 shares, you own a majority or controlling interest in that company. When the company makes major decisions, the shareholders must vote on them. The more shares you have, the more votes you get. If you own more than half of the shares, you always have a majority of the votes. In many respects, you can control the company.

So a hostile takeover boils down to this: The buyer has to gain control of the target company and force them to agree to the sale. We'll explain how it's done in the next section.