Crying foul: when a takeover bid reported as "hostile", it's likely that the target company's directors are facing a conflict of interests. After all, writes Mike Brooks, it takes a brave turkey to vote for an early Christmas.
| Author | Brooks, Mike |
| Position | Opinion |
The reporting of business activities and issues can get pretty confused sometimes. Whether this is caused by a tack of understanding among journalists or by a determination to spin the facts into the most entertaining story possible is a moot point. Whatever the reason, it's often hard even for seasoned followers of business to distinguish the reality from the story and make sense of what's happening. Nowhere is this more apparent than in the reporting of takeovers and the behaviour of the target company's directors.
The conventional view of the relationship between a company's shareholders and its directors is well established: the directors are there to look after the long-term interests of the shareholders. This is not to argue that the firm's other stakeholders don't matter--satisfying their legitimate interests will ultimately also serve the best interests of the owners of the business. But the reality of how many modern companies operate seems to differ from the theory, It often appears that the main purpose of a company is to serve the interests of its management team. To most outsiders, these individuals are the company. The shareholders are simply an amorphous body of people who have invested in the company--although even this is not quite correct, since most plc shareholders have not invested directly but have instead bought their stock on the market, And the conventional theory of cost of capital seems to reinforce this view: the shareholders' interest simply represents a cost that the company must bear in order to keep them quiet.
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If you think this is a rather extreme interpretation, then consider what happens when what is commonly known as a hostile bid for a company occurs What is the nature of this hostility and to whom is it directed? There is surely no hostility between the bidder and the shareholders to whom the bid is addressed. Why, if you wanted to buy something from someone, would you treat them in a hostile manner? No. any hostility is between the bidder and the board of the target company.
Some people argue that this isn't real hostility; it's simply role-playing by the board on behalf of the shareholders, reflecting its genuine belief that the bid is ludicrously inadequate. This, they say, is simply the first round of a negotiation in which the directors are aiming to...
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