Definition
An unsolicited bid, in financial terms, refers to an offer to buy a company’s shares or other assets without a prior request from the company’s management or board. This is often done with the intention of taking over the company. The term is commonly associated with hostile takeovers, as the company targeted may not desire such a bid.
Phonetic
The phonetic pronunciation of “Unsolicited Bid” would be: ʌn·suh·lih·si·tuhd bid
Key Takeaways
- Initiator-driven: An Unsolicited Bid is typically initiated by a bidder or potential buyer, without any formal or public request from the seller. The bidder perceives value in the acquisition, initiates the bid and expresses their interest to acquire, whether or not the target company is up for sale.
- Consequences: Unsolicited bids may lead to a hostile takeover if the target company’s board is against the acquisition but the hosting firm continues to pursue it. This could potentially lead to a takeover battle. On a positive note, it might also stimulate competing offers from other businesses, resulting in higher bids.
- Legal and Regulatory Implications: Unsolicited bids are governed by legal and regulatory frameworks which vary from country to country. Complying with these frameworks is crucial during the process. This could include disclosure requirements, timing restrictions, negotiations rules, among others.
Importance
An unsolicited bid is a significant term in business and finance because it indicates an attempt to purchase a company that is not actively for sale or looking for a buyer. These bids can influence the course of a business’s future, causing management to reconsider their strategies or provoke other potential buyers to make their own offers. Unsolicited bids can often lead to hostile takeovers if the company’s management and board of directors refuse the offer, yet shareholders vote to accept. Moreover, this term is vital for investors to understand as it can significantly impact the value of their investments. Therefore, unsolicited bids play a crucial role in the dynamics of corporate control and ownership, merger and acquisition activities, market competitiveness, and the investment landscape.
Explanation
Unsolicited bids are primarily used as a strategic tool in the world of finance and business acquisitions, serving to catalyze potential partnerships or acquisitions in a proactive manner. The term refers to a purchase offer made by a party for buying a company’s shares, that hasn’t been asked for — or solicited — by the company’s current owners or the management. An entity or a group that sees potential growth or beneficial business synergy with another company might place an unsolicited bid to buy part or all of its shares. This highlights a key advantage of unsolicited proposals – they make the possibility of a strategic partnership visible to a wider business audience.In addition to sparking potential mergers or acquisitions, these unsolicited offers can often lead to an increased competitiveness in the market, as they may incite other interested parties to submit their own bids. This can potentially lead to a bid war, culminating in a scenario favourable for the owners of the company because the initial bid can put the company ‘in play,’ resulting in an increased valuation. Despite the potential resistance they may face from incumbent management, unsolicited bids serve as a technique for accelerated business growth, market consolidation, and the enhancement of existing capacities.
Examples
1. Oracle’s Tough Tactics: Oracle Corporations, a leading computer technology company, launched an unsolicited bid to acquire PeopleSoft in 2003, which was the third-largest application software manufacturer at that point. PeopleSoft’s board initially rejected the bid, but Oracle’s persistent efforts led to a lengthy hostile takeover, eventually concluding in 2004 with Oracle successfully purchasing PeopleSoft for about $10.3 billion.2. Comcast’s Bold Attempt: In 2004, the broadcasting and cable television company, Comcast, made an unsolicited public bid for American media conglomerate Disney. The offer was a surprise, and it was valued at about $54 billion. However, Disney’s management turned down the offer, stating that it undervalued the company. This is a prime example of how unsolicited bids can be rejected because they may not be in the best interest of the current company’s shareholders.3. Air Products and Chemicals’ Unsolicited Bid: In 2010, Air Products and Chemicals pursued an aggressive and unsolicited bid to acquire specialty chemicals and materials firm, Airgas Inc. Despite increasing the offer price several times, Air Products was unsuccessful, as the Airgas board believed that each bid significantly undervalued the company. This situation is another interesting case where the target company resists the hostile bid to ensure shareholder value and long-term growth.
Frequently Asked Questions(FAQ)
What is an Unsolicited Bid?
An unsolicited bid is a type of offer made by an individual, company, or entity to buy another company that is not for sale or has not expressed any interest in being sold.
How does an Unsolicited Bid work?
An entity interested in acquiring another firm, which has not announced any intent of being sold, will make an unsolicited offer. This is usually done by purchasing a significant amount of shares or by offering a tempting proposition which the corporation’s executives are compelled to consider.
Is an Unsolicited Bid the same as a Hostile Takeover?
Not necessarily. All hostile takeovers begin as unsolicited bids, but not all unsolicited bids transform into hostile takeovers. A hostile takeover occurs if the board of directors rejects the bid but the bidder continues to pursue the acquisition.
Why might a company make an Unsolicited Bid?
An entity might make an unsolicited bid if they believe that the target company is undervalued, or they see strategic value such as enhancing their market position, gaining new technology, diversifying portfolio, or achieving economies of scale.
How can a company protect itself from an Unsolicited Bid?
Companies often employ defensive strategies such as a poison pill where additional shares are released to make the takeover less appealing, staggered boards where only a part of the board is elected at a time, or a golden parachute which provides significant benefits to top executives if the company is taken over.
What are the implications for shareholders with an Unsolicited Bid?
Shareholders may benefit from an unsolicited bid as often these bids are made at a premium to the market price. However, if the bid is considered hostile, it might lead to uncertainty affecting the stock price negatively in the short run.
Can shareholders reject an Unsolicited Bid?
Yes, shareholders ultimately have the power to accept or reject an unsolicited bid. They can vote against the bid, or if it’s a tender offer, they can simply choose not to sell their shares. Alternatively, they can lobby the company’s board to reject the bid.
What are some examples of Unsolicited Bids?
A famous example of an unsolicited bid is Microsoft Corp.’s 2008 proposal to buy Yahoo Inc. for $44.6 billion, which was later rebuffed by Yahoo! The bid was about 62 percent above where Yahoo’s shares were trading prior to the announcement of the bid.
Related Finance Terms
- Hostile Takeover: This is when a company attempts to acquire another without the agreement of the target company’s board.
- Mergers and Acquisitions (M&A): The process through which companies are bought, sold, or merged together. An unsolicited bid can often be the starting point for a merger or acquisition.
- Tender Offer: This is a formal, public offer to purchase the majority of shares in a corporation, usually at a higher price than the market price. This can often be part of an unsolicited bid.
- Shareholder Rights Plan: Also known as “poison pills,” these are strategies used by companies to discourage unsolicited bids by making the takeover less attractive or more costly.
- White Knight: A third party or company that places a friendly bid on a corporation facing a hostile takeover, usually in an attempt to rescue it from the unsolicited bid.
