Unsolicited Bid

An unsolicited bid is an offer by an individual, investor, or company to buy a company that is not actively seeking a buyer. When the target resists, the bid can become a hostile takeover. Unsolicited bids often arise when an acquirer sees untapped value, proprietary technology, market share, or other strategic benefits in the target.

Key takeaways
* An unsolicited bid is initiated by the buyer, not requested by the target.
* If the target resists, the bid can become hostile.
* Buyers pursue unsolicited bids to gain market share, acquire technology, limit competition, or break up a target for value.
* Targets can reject bids or use defensive measures such as poison pills or employee stock ownership plans.

How unsolicited bids work
* A buyer identifies a target company and offers to acquire it even though the target is not seeking a sale.
* The initial offer can trigger competing bids, potentially leading to a bidding war that raises the purchase price.
* Unsolicited bids occur in both private and public markets; they were especially common in the 1980s when acquirers targeted undervalued or poorly managed firms.

Unsolicited bid vs. solicited bid
* Unsolicited bid: The buyer initiates the offer; the target may be unaware or unwilling to sell. Often associated with hostile takeover attempts.
* Solicited bid: The target is actively seeking buyers and management is cooperative; these are typically friendly takeovers.

Why companies make unsolicited bids
Buyers pursue unsolicited bids to:
* Increase or control market share.
* Access proprietary technology or intellectual property.
* Capture expected growth or synergies.
* Prevent rivals from acquiring the target.
* Realize value by restructuring or breaking up the target company.

How targets can respond or defend
Common defenses used by target companies include:
* Rejecting the offer outright.
* Poison pill: Allowing existing shareholders to buy discounted shares, diluting the bidder’s stake and making acquisition more expensive.
* “People poison pill”: Management threatens to resign if a takeover succeeds, raising costs and uncertainty for the acquirer.
* Employee stock ownership plans (ESOPs): Increasing employee share ownership to strengthen voting alignments with management.
* Seeking a white knight: Finding a friendly bidder to offer better terms.

Example
A regional oil company (ABC) offers $1 billion in cash to acquire competitor DEF to remove a rival and obtain DEF’s technology. DEF declines. ABC raises its offer to $1.4 billion, but a third party (XYZ) later offers $2 billion and wins the deal because it can pay a premium. This illustrates how unsolicited offers can trigger competing bids and escalate valuations.

Related concepts
* Hostile takeover: An acquisition attempt opposed by the target’s management, often pursued by appealing directly to shareholders or buying a controlling stake.
* Merger vs. acquisition: A merger combines two companies into a new entity; an acquisition involves one company buying and folding another into itself.

Frequently asked questions
What differentiates an unsolicited bid from a hostile takeover?
* An unsolicited bid is any uninvited acquisition offer. It becomes a hostile takeover if the target actively resists and the bidder pursues control despite opposition.

Can a target company block an unsolicited bid?
* Yes. Targets can reject offers, use legal and corporate defenses (poison pills, ESOPs), or seek alternate buyers to make acquisition less attractive.

Do unsolicited bids always involve public companies?
* No. They can target both private and publicly traded companies, though public targets often allow bidders to buy shares directly from the market or shareholders.

Are unsolicited bids common?
* They’re less common than friendly, solicited transactions but still occur when buyers identify strategic opportunities or undervalued targets.

Notable example
* Vodafone’s acquisition of Mannesmann in 2000 began with an unsolicited offer and ultimately became one of the largest takeovers in history, demonstrating how initial resistance can result in very large deals after competing offers and negotiation.