Dissolution as Hostile Takeover Defense (Coming Fall 2024)

LMK - 10/22

Dissolution can serve as a strategic defense tactic against hostile takeovers. When facing an unwelcome takeover attempt, a target company's management might opt to initiate dissolution. By choosing this route, the target company signals its intention to liquidate assets and cease operations, making the takeover less appealing to the acquiring entity.

The process of dissolution as a hostile takeover defense generally looks as follows:

Board Approval: The board of directors of the targeted company (the one facing the hostile takeover attempt) must approve the decision to use dissolution as a defense. This decision is typically made after careful consideration of the takeover bid, its terms, and the potential consequences of dissolution.
Announcement: The board publicly announces its intention to dissolve the company if the hostile takeover bid is successful. This announcement is often accompanied by a statement explaining the reasons for the decision, which may include concerns about the bidder's intentions, the price offered, or other factors that the board believes are not in the best interests of the company and its shareholders.
Proxy Battle: Shareholders are then presented with a choice– they can either accept the hostile takeover bid or vote in favor of dissolution. A proxy battle may ensue, with the company's management and the hostile bidder both seeking shareholder support for their respective positions. Shareholders are typically asked to vote on a resolution that authorizes the board to proceed with dissolution if the takeover bid succeeds.
Shareholder Vote: A special shareholder meeting is held to vote on the resolution. Shareholders can cast their votes either in person or by proxy. The outcome of this vote will determine the next steps.
Implementation: If shareholders vote in favor of dissolution, and the hostile takeover bid is successful, the company proceeds with the dissolution process. This involves liquidating assets, paying off debts, and distributing any remaining assets to shareholders. The company ceases to exist as a legal entity.

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