Question

Suppose a firm has been poorly managed for a long time and its equity is thus undervalued. A hostile corporate raider unexpectedly initiates a takeover attempt to acquire the firm, and launches a tender offer to the target shareholders. What happens to the target's share price?

Answer 1

Upon a hostile takeover attempt via a tender offer, the target firm's share price typically rises as the offer is likely at a premium and reflects the potential change of control.

Step-by-step explanation:

When a hostile corporate raider initiates a takeover attempt on an undervalued firm by launching a tender offer, it usually leads to an increase in the target firm's share price. This occurs because the raider is attempting to purchase shares at a premium to gain control of the company. As the market reacts to the possibility of a takeover and the availability of a premium price for the shares, the share price of the target company commonly goes up to reflect this new information and interest in the stock.