Godfather offer – definition and meaning

A godfather offer is a takeover bid that is so generous, the target company would find it extremely difficult to turn it down. In other words, a godfather offer is a tender offer that the target company must accept. The term – ‘make him an offer he can’t refuse’ – comes from the 1969 book and 1972 film ‘The Godfather.’ It is one of the most famous lines from any film.

In business English, a godfather offer is a tender offer that is extremely generous. The bidder offers to purchase the target company’s shares at a much higher price than their market value. It would be a breach of fiduciary duty for senior management to turn down the offer.

Unlike the movie or book ‘The Godfather,’ the bidder is not threatening anybody’s life. Quite simply, it means an offer that would be silly and irresponsible to turn down.

Godfather offer during a hostile takeover

This type of offer is common during a hostile takeover attempt. A hostile takeover is one in which the target company does not want the predatory company to acquire it.

However, even though it is a hostile takeover attempt, the board cannot discourage shareholders from accepting the offer.

Godfather offer - definition and illustration
In the movie, Marlon Brando plays Don Vito Corleone, i.e., The Godfather. That is where the business term came from.

According to Collins Dictionary, a godfather offer is:

“A takeover bid pitched so high that the management of the target company is unable to dissuade shareholders from accepting it.”

Godfather offer and shareholder rebellion

In fact, if senior management refused the offer, shareholders would probably initiate lawsuits. In other words, they would take them to court.

They could also organize a shareholder rebellion because the board was not performing its fiduciary duty.

The board’s fiducially duty is to look out for the best interests of the stockholders. The term ‘stockholder’ means the same as ‘shareholder’.

It is even more difficult to turn down a godfather offer if the company’s share price has been weak.

If the stock price has been declining for a long time, many long-term shareholders might want to sell.

If the predatory company offers to buy their shares at a very high price, the temptation would be overwhelming.

Godfather offer – an example

Let’s suppose there are two companies, Hawk Inc. and Rabbit Corp. In the world of business, the former is a predator, and the latter is its prey. In other words, the former wants to acquire the latter. Rabbit’s shares are trading at $20.

Hawk desperately wants to acquire Rabbit, and Rabbit knows this. However, Rabbit does not want the takeover to succeed. It is a hostile takeover.

Hawk makes a tender offer of $30 per share, i.e., an offer with a 50% premium. Put simply; Hawk makes a godfather offer.

Even though the board is not happy, it cannot refuse the offer without triggering a shareholder rebellion. In fact, the shareholders would probably sue the board for failure to act in their best interests.

The Godfather movie

In The Godfather book and movie, Don Vito Corleone hears a request from Johnny Fontane, his godson. Corleone is the Godfather, i.e., head of the Corleone Mafia family.

Fontane is a singer. He wants Corleone to help him get a part in a movie. However, studio head, Jack Woltz isn’t keen.

Corleone decides to help his godson, and says “I’m gonna make him an offer he can’t refuse.”

Corleone sends his lawyer to Hollywood to try to persuade Woltz. However, Woltz still refuses to cast Fontane.

When Woltz wakes up the next morning, he finds the severed head of his stud horse in his bed.