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.

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.