Question

Suppose the market price of a stock you own (Company A) is $25. Company B has announced it is willing to pay $35 per share to buy the stock of Company A. Company A’s management immediately begins fighting this “hostile bid”. Is management of Company A acting in the best interests of its shareholders? Why or why not?

Answer 1

To analyze this situation you should not only look at monetary compensation offered by the hostile company. But also the motive to acquire the target. So yes equity shareholders will receive more value at present but what about future years. Is company taking it as strategically or as a revenge . Which new management retain its employees or change capital structure or replace old management. All these aspects needs to be analyzed . Then only we can support old management decision of stopping this hostile bid.

But if company is in distress and current management doesn't seems any way out of their financial instability then this kind of offer is heaven. And they should accept it.