A “hostile takeover” occurs when an investor, typically a company (the “acquirer”), attempts to acquire another company (the “target”) after their bid has been rejected by the target company’s board.
In a hostile takeover, the acquirer attempts to gain a controlling stake in the target by purchasing shares in the target company.
In many cases, the acquisition of shares is performed indirectly so as to prevent the target company’s board from becoming aware of the hostile takeover until the acquirer achieves a controlling stake.
Because successful hostile takeovers can result in massive restructuring, departure of key employees or the complete closure of a company (in the event that the company is taken over by a competitor), they often have negative consequences for shareholders.
Companies make use of a number of mechanisms to protect themselves from hostile takeovers, and these are cumulatively referred to as “poison pills”. Poison pills which can potentially cause permanent damage to the target company are referred to as “suicide pills”.