How a Hostile Takeover Works and How Poison Pills Stop It

A hostile takeover is an attempt to buy a public company against the wishes of its board, usually by offering to buy shares directly from shareholders in a tender offer, by running a proxy fight to replace the directors, or both. Boards respond with defenses such as a shareholder rights plan, known as a poison pill. Each step is disclosed in SEC filings: the bidder’s Schedule TO and the target’s Schedule 14D-9.

Most hostile bids start as private approaches. They turn hostile when the board says no and the bidder decides to take the offer to shareholders.

What are the steps in a hostile takeover?

Bidders usually escalate in stages, and many stop when the board agrees to negotiate.

A tender offer must stay open at least 20 business days, and holders can withdraw tendered shares while it is open. Our guide to how tender offers work explains the mechanics from a holder’s side.

How does a poison pill work?

A poison pill gives every shareholder except the hostile buyer the right to buy more shares at a steep discount if anyone crosses an ownership threshold without board approval. Exercising the rights would sharply dilute the buyer, so in practice no bidder crosses the line. The board can redeem or waive the pill for a deal it approves.

Twitter used one in 2022. On April 15, 2022, after Elon Musk offered to buy the company, Twitter’s board adopted a rights plan that, in the words of its 8-K, imposes “a significant penalty” on any person or group that acquires 15 percent or more of the common stock without board approval. Ten days later, on April 25, 2022, Twitter agreed to be acquired by Musk at $54.20 a share, and the pill did not block the board-approved deal.

A pill does not stop a tender offer from being made. It stops the bidder from buying shares above the threshold, which is why hostile bidders usually pair a tender offer with a proxy fight to elect directors who will remove the pill.

What other takeover defenses do companies use?

• Staggered board. Directors are split into classes, with only one class elected each year. A bidder that wins a proxy fight still needs two annual meetings to take control.
• White knight. The board finds a friendlier buyer and signs a deal with it instead.
• Delaware Section 203. A buyer that crosses 15% without board approval generally cannot complete a merger with the company for three years, unless one of the statute’s exceptions applies. Bidders often make board approval under Section 203 a condition of their offer.
• Charter and bylaw provisions. Limits on calling special meetings, acting by written consent or removing directors make it slower to replace a board.
• Deal protections. If the target has already signed with another buyer, the breakup fee in that agreement raises the cost of switching.

How do Delaware courts judge takeover defenses?

Most large US companies are incorporated in Delaware, so its court decisions set the standards. In plain terms:

• Unocal (1985). Defensive measures get enhanced scrutiny. The board must show it reasonably saw a threat to the company or its shareholders and that its response was proportionate, not coercive or preclusive.
• Moran v. Household International (1985). The Delaware Supreme Court upheld the adoption of a rights plan, while leaving its use in a particular bid open to review.
• Revlon (1986). Once a board decides to sell the company for cash or a change of control is inevitable, its duty shifts to getting the best value reasonably available for shareholders.

Courts have also struck down pills they found unreasonable. In the Williams Companies case in 2021, the Delaware courts invalidated a pill with an unusually low 5% trigger and other aggressive terms adopted outside any takeover threat.

How did a recent hostile bid play out?

Paramount Skydance’s pursuit of Warner Bros. Discovery shows the sequence. After Warner Bros. Discovery agreed to a deal with Netflix, Paramount announced a cash tender offer for all Warner Bros. Discovery shares at $30.00 a share on December 8, 2025, according to Paramount’s own SEC filings. It amended the offer several times: on December 22, 2025 it added a personal guarantee of the equity financing from Lawrence Ellison, and on February 10, 2026 it added a ticking fee of $0.25 per share for each quarter the deal did not close after December 31, 2026, plus prepayment of the $2.8 billion termination fee Warner Bros. Discovery would owe Netflix. Paramount also filed proxy materials opposing the Netflix transaction.

The bid then became a negotiated deal. Paramount’s filings describe a merger agreement announced on February 27, 2026 under which Paramount will acquire Warner Bros. Discovery; in its May 2026 filings the merger was still pending. Check the companies’ latest 8-Ks for the current status.

Bottom line

When a hostile bid is announced, the target’s Schedule 14D-9 is the document to read: it gives the board’s recommendation, its reasons and the history of the talks. A rejected hostile offer often ends in a higher price from the same bidder or a competing deal, so the first offer is not always the final number.

FAQ

Is a hostile takeover legal?

Yes. Making an offer directly to shareholders is legal under the SEC’s tender offer rules, and boards are equally free to adopt defenses that meet the Delaware standards.

Does a poison pill need shareholder approval?

Usually no. Boards can adopt rights plans on their own, often with a one-year term, and some companies later put them to a shareholder vote.

What happens to my shares in a hostile tender offer?

You decide whether to tender. If the bidder completes the offer and a second-step merger, untendered shares are usually converted into the same consideration.

How is a proxy fight related to a hostile bid?

A bidder can nominate directors who will redeem the pill or approve its offer. Our guide to how proxy fights work covers the voting rules.