A hostile take over occurs when a firm’s stock is undervalued relative to its potential because of poor management. That doesn’t really apply here because there’s no mention of replacing the management. Although if you really wanted to “destroy” a competitors company a hostile take over would make a lot more sense than trying to ruin the market value of thier stock by undercutting their market stock price. There are two reasons for this that I can think of.
#1 The stock market you hear of, with the exception of is a secondary market. The primary market is where a corporation sells securities to raise capital, and consequently transactions in the primary market have a direct effect on the corporation’s balance sheet. The secondary market where your transaction would take place would not effect your competitors balance sheet at all. Consequently your competitors financial health would be relatively the same as before you implemented your scheme.
#2 Even if you were able to pull off this scheme the effect wouldn’t last long. The market price of a stock is not calculated as arbitrarily is it may seem. There are several equations for calculating the value a stock based on economic factors, dividends, growth, sales, debt to equity ratio. These formulas are not always right on, sometimes each one gives you a completely different answer for the same stock but they can usually give you some idea of what the value of a stock should be. Consequenly investors will take quick notice to the extremely undervalued stock and buy it at the first chance they get. This process will then gradually drive the price back up to $20 dollars a share.
As for being illegal, I don’t know. I would assume it probably isn’t. It makes about as much sense as buying a lexus for $60,000 and selling it the next day for $3,000.
Don’t try it, your competitor will feel little or no effect from it, and your stock broker will laugh his way into early retirement.