DEFINITION of 'Clandestine Takeover'

Clandestine takeover is an attempt to gain control over a company through secretive means. Clandestine takeover attempts are often launched against publicly-traded companies where individuals can acquire shares on the secondary market without disclosing their activities until required to by regulatory authorities. This may be advantageous in situations where existing management would be unreceptive to a conventional takeover bid.

BREAKING DOWN 'Clandestine Takeover'

A takeover bid can be straightforward - a company or entity (e.g., private equity firm) that wants to buy another company approaches the Board of Directors and negotiates a friendly deal, assuming, of course, that the board believes that it is acting in the best interests of the shareholders. (The shareholders will later have the opportunity to approve any such takeover deal.) A takeover deal can become thorny if a hostile bidder is involved, or if a party, hostile or otherwise, launches a tender offer for control of a company.

Clandestine takeover is not a friendly means to acquire another company. An acquirer will quietly build up a stake in the target company and work behind the scenes to deliver a surprise attack on the target. A high-profile example of this style was the attempted joint bid of Pershing Square Capital Management, a hedge fund led by Bill Ackman, and Valeant Pharmaceuticals International for Botox maker Allergan Inc. in 2014. Ackman's fund independently accumulated a large position (just under 10%) in Allergan and then teamed up with Valeant to bid for Allergan. The market had no idea that the hedge fund and Valeant were plotting a hostile bid. In fact, Allergan and two state pension funds accused both parties of insider trading in a lawsuit filed shortly after the clandestine takeover bid was revealed. "After careful consideration, Allergan decided to file the lawsuit in order to ensure that all of its stockholders have the opportunity to make decisions regarding their investment in the company based on compliant, full and fair disclosures, and to ensure that any stockholders voting on corporate matters acquired their shares in accordance with the law," Allergan stated in the court filing.

Ackman and Valeant's clandestine takeover attempt ultimately failed. Allergan's lawsuit, on the other hand, succeeded, forcing the sneaky duo to cough up a $290 million settlement in 2017.

RELATED TERMS
  1. Hostile Takeover

    A hostile takeover is the acquisition of one company by another ...
  2. Takeover

    A corporate action where an acquiring company makes a bid for ...
  3. "Just Say No" Defense

    A "just say no" defense is a strategy used by boards of directors ...
  4. Killer Bees

    Killer bees helped companies avoid takeovers, during the 198 ...
  5. Parking Violation

    The illegal practice of an acquiring company concealing ownership ...
  6. Anti-Takeover Measure

    In order to block hostile bids for control of a company, the ...
Related Articles
  1. Investing

    Mergers and acquisitions: Understanding takeovers

    In the language of mergers and acqusitions, battleground terms meld with bizarre metaphors to create a unique vocabulary.
  2. Small Business

    Corporate Takeover Defense: A Shareholder's Perspective

    Find out the strategies corporations use to protect themselves from unwanted acquisitions.
  3. Investing

    Trademarks of a Takeover Target

    These tips on finding viable takeover targets can lead you to little companies with big prospects.
  4. Investing

    What Would Full Disclosure Mean For The Market?

    More investors and the media are calling for the full disclosure of company financials following several high-profile accounting scandals in recent years.
  5. Small Business

    How To Profit From Mergers And Acquisitions Through Arbitrage

    Making a windfall from a stock that attracts a takeover bid is an alluring proposition. But be warned – benefiting from m&a is easier said than done.
  6. Investing

    Poison Pill

    A poison pill is a corporate maneuver put in place to try and prevent a hostile takeover. The target corporation uses this strategy to make its stock less attractive to the acquirer. This is ...
  7. Investing

    Unilever Asks UK Govt. for ‘Level Playing Field’

    The company wants to extend the time allowed for takeover targets to defend themselves.
  8. Investing

    Footnotes: Early Warning Signs For Investors

    These documents hold very important information, but reading them takes skill.
  9. Small Business

    What Disclosures Mean in Plain English

    Disclosures are the fine print in financial reports. Find out what they really mean and how they reveal the nature of relationships in research reports.
RELATED FAQS
  1. What happens to the shares of a company that has been the object of a hostile takeover?

    Learn about the effect on the share price of companies that are targets of hostile takeovers, which are tactics used by famed ... Read Answer >>
  2. A Hostile Takeover vs. Friendly Takeover

    Learn about the difference between a hostile takeover and a friendly takeover, and understand how proxy fights and tender ... Read Answer >>
  3. What's the difference between a merger and a hostile takeover?

    Understand the difference between a merger and a hostile takeover, including the different ways one company can acquire another, ... Read Answer >>
  4. What is a staggered board?

    A staggered board of directors (also known as a classified board) is a board that is made up of different classes of directors. ... Read Answer >>
Hot Definitions
  1. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  2. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  3. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  4. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  5. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  6. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
Trading Center