Takeover Definition, Types of Takeovers, Examples
Takeovers can be done by purchasing a majority stake in the target firm. Takeovers are also commonly done through the merger and acquisition process. In a takeover, the company making the bid is the acquirer and the company it wishes to take forex day trading rules control of is called the target. A takeover is a term used in business when a given company is purchased by another (the acquirer). In other words, takeover happens when one company through bidding, assumes control of another company.
For example, they can appeal to the majority of shareholders to sell directly to them so that they can get control over the firm. In a majority of cases, if the board approves a buyout offer from an acquiring firm, the shareholders follow suit, by likewise voting for the deal’s passage. In most prospective friendly takeovers, the price per share that’s being offered is the chief consideration, ultimately determining whether or not a deal is approved. One of the ways to prevent hostile takeovers is to establish stocks with differential voting rights like establishing a share class with fewer voting rights and a higher dividend.
This opens the door for employees to vote with management, making it a fairly successful defense against being acquired. Establishing an employee stock ownership program (ESOP) involves using a tax-qualified plan in which employees own a substantial interest in the company. A “macaroni defense” is a tactic by which the target company issues a large number of bonds that come with the guarantee that they will be redeemed at a higher price if the company is taken over. Because if a company is in danger, the redemption price of the bonds expands, kind of like macaroni in a pot! This is a highly useful tactic, but the target company must be careful it doesn’t issue so much debt that it cannot make the interest payments. An example of an acquisition would be how the Walt Disney Corporation bought Pixar Animation Studios in 2006.
What Is the Difference Between a Friendly Takeover and a Hostile Takeover?
The potential acquirer in a takeover usually makes a bid to purchase the target, normally in the form of cash, stock, or a mixture of both. The offer is taken to the company’s B of D, which either approves or rejects the deal. If approved, the board holds a vote with shareholders for further approval.
- In other situations, they can be rejected, in which case, without indicating, the larger organisation goes after the target.
- The acquirer then builds up a substantial stake in its target at the current stock market price.
- Whether both parties are in agreement or not, will often influence the structuring of a takeover.
- Let’s take a look at some more popular ways that companies can protect themselves from a predator.
- Usually, in these cases of mergers or acquisitions, shares will be combined under one symbol.
By this time, Ralcorp had completed the spinoff of its Post cereal division, resulting in approximately the same offering price by ConAgra for a slightly smaller total business. Usually, in these cases of mergers or acquisitions, shares will be combined under one symbol. This can be done by exchanging shares from the target’s shareholders to shares of the combined entity. An acquiring company will attempt an opportunistic takeover where it thinks the target is priced well.
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In other words, it can go public without all the IPO expense and time. A friendly takeover is an acquisition where the owners of both companies agree to the terms of the transaction. Debt capital for the acquirer may come from new funding lines or the issuance of new corporate bonds. Takeovers are typically initiated by a larger company seeking to take over a smaller one.
Today, Siebert Financial Corp is a holding company for Muriel Siebert & Co. and is one of the largest discount brokerage firms in the United States. After making the tender offer, Company B can then accept the offer, negotiate a different price offer or make use of other defense to change the pact or find another interested party to sell the company to. It must be a party with better terms than that being offered by Company A. This means it is willing to pay a price which is higher than being offered by Company A and sell to him or her. However, if the terms being offered are accepted by Company B, then the regulatory bodies will do a review of the business deal to ensure that the procedure does not bring about monopoly. The deal is closed after the regulatory bodies approve the transaction and the two companies exchange funds.
How Can Management Preempt a Hostile Takeover?
For example, in 2010, the biotech company Sanofi-Aventis made a tender offer to purchase another biotech company, Genzyme. Because Sanofi-Aventis was unsuccessful in making its case to the company’s executives, it took its offer directly to the shareholders, and the deal was completed less than a year later. It allows shareholders of the target to buy more shares at a discount to dilute the holdings of the acquirer and make a takeover costlier. When a private limited company takes over a public limited one, a reverse takeover occurs. The acquiring company must have ample resources to finance the acquisition. In a flip-over poison pill scenario, a company may offer shareholders the right to buy shares of an acquired company for a discount, diluting share prices in the event that a takeover is successful.
A reverse takeover
Some activist investors, known in the 80s and 90s as raiders, seek to takeover companies and then dismantle them later in order to turn a quick profit. The goal of a scorched earth policy is to damage an acquirer if a takeover is successful. A people poison pill could also include key experienced employees to leave in the case of a takeover as well.
The white knight offers the target firm a way out with a friendly takeover. When the company gets bought out (or taken private) – at a dramatically lower price – the takeover artist gains a windfall from the former top executive’s actions to surreptitiously reduce the company’s stock price. This can represent if you can tens of billions of dollars (questionably) transferred from previous shareholders to the takeover artist. The former top executive is then rewarded with a golden handshake for presiding over the fire sale that can sometimes be in the hundreds of millions of dollars for one or two years of work.
In this case, shareholders of the target company receive cash from the sale, but rather than becoming a part of the acquiring company, the target company simply becomes an empty shell. In a proxy fight, a potential acquirer will attempt to convince shareholders to vote out a target company’s current management team. If a current company’s management is unpopular with shareholders, a proxy fight can easily be successful.
An example of a creeping takeover is Porsche’s acquisition of Volkswagen. They slowly accumulated shares of VW, with the intent to take control of the company. Eventually, the financial crisis took place, which prevented Porsche from acquiring VW, and hence accumulated large amounts of debt.
When a company, investor, or group of investors makes a tender offer to purchase the shares of another company at a premium above the current market value (CMV), the board of directors may reject the offer. The acquirer can approach the shareholders, who may accept the offer if it is at a sufficient premium to market value or if they are unhappy with current management. The Williams Act of 1968 regulates tender offers and requires the disclosure of all-cash tender offers. Empirical studies are mixed, but history shows, in post-merger analysis, a target company’s shareholders often benefit most, likely from the premiums paid by acquirers. Contrary to many popular Hollywood movies, most mergers begin friendly.
The big business takeover of Hollywood is at fault rather than American storytellers – it’s what keeps textured movies from getting made,”
(James Gray – an American film director and screenwriter). A takeover may also refer to the acquisition or colonization of a country. Property prices there are some of the highest in the world, according what umarkets forex broker offers you when investing your money to the estate agents Knight Frank and Sotheby’s. While the estate has always been expensive, the average price of its almost 200 homes has risen from about €5m a decade ago to more than €13m today, though they rarely change hands. “But now there are so many of them, and everything is so ‘luxe’ it makes you want to throw up.
People poison pill
Voluntary takeover here means that there is a mutual agreement between the two companies. On the other hand, unwelcome takeover refers to cases where the takeover process is not a shared idea, meaning that the acquiring company acts without the consent or knowledge of the target company. This, therefore, means that the target company’s management may or may not be in an agreement with the takeover. This situation may then lead to the creation of different takeover classifications (types) as discussed below.