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A takeover in business refers to one company (the acquirer, or bidder) purchasing another (the target). In the UK the term properly refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company. Wall Street, Manhattan is the location of the New York Stock Exchange and is often used as a symbol for the world of business. ...
A company is, in general, any group of persons, which are known as its members, united to pursue a common interest. ...
The phrase mergers and acquisitions or M&A refers to the aspect of corporate finance strategy and management dealing with the merging and acquiring of different companies. ...
A private company is a company that is independently owned. ...
Friendly and hostile takeovers When a bidder makes an offer for another, it will usually inform the board of the target beforehand. If the board feels that the value that the shareholders will get will be greatest by accepting the offer, it will recommend the bid. Otherwise it will reject it and the bid will become hostile. If the bidder makes the offer without informing the board beforehand, the offer is also considered hostile. Tender offer is a term typically used in corporate finance to mean a public, open offer by an entity to buy stock from the existing stockholders of a publicly traded corporation under specific terms in effect for a specific period. ...
In relation to a company, a director is an officer of the company charged with the conduct and management of the affairs of the company. ...
A shareholder or stockholder is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. ...
Bid (Medical) (a medical abbreviation commonly seen on prescriptions) Bid price (a financial term) Efforts to get any thing or to get the right to celebrate an event. ...
The main consequence of a bid being considered hostile is practical rather than legal. If the board of the target co-operates, the bidder will be able to conduct extensive due diligence into the affairs of the target company. It will be able to find out exactly what it is taking on before it makes a commitment. A hostile bidder will know only the information on the company that is publicly available and will therefore be taking more of a risk. Banks are also less willing to back hostile bids with the loans that are usually needed to finance the takeover. Due diligence is a term used for a number of concepts involving either the performance of an investigation of a business or person, or the performance of an act with a certain standard of care. ...
Iain Banks is a Scottish-born writer of both mainstream and science fiction novels. ...
In a private company the shareholders and the board are likely to either be the same people or be closely connected. Therefore all private acquisitions are likely to be friendly, because if the shareholders have agreed to sell the company then the board, however comprised, will usually be of the same mind or be sufficiently under the orders of the shareholders to co-operate with the bidder. This point is not relevant to the UK concept of takeovers, which always involve the acquisition of a public company.
Reverse takeovers -
- A reverse takeover is a type of takeover where a public company acquires a private company of a higher value. This is usually done at the instigation of the larger, private company, the purpose being for the private company to effectively float itself while avoiding some of the expense and time involved in a conventional IPO.
A reverse takeover (RTO), also known as a back door listing, or a reverse merger, is a financial transaction that results in a privately-held company becoming a publicly-held company without going the traditional route of filing a prospectus and undertaking an initial public offering (IPO). ...
A reverse takeover (RTO), also known as a back door listing, or a reverse merger, is a financial transaction that results in a privately-held company becoming a publicly-held company without going the traditional route of filing a prospectus and undertaking an initial public offering (IPO). ...
An initial public offering (IPO) is the first sale of a corporations common shares to public investors. ...
An initial public offering (IPO) is the first sale of a corporations common shares to public investors. ...
Financing a takeover
Cash A company acquiring another will frequently pay for the other company by cash. The cash can be raised in a number of ways. The company may have sufficient cash available in its account, but this is unlikely. More often the cash will be borrowed from a bank, or raised by an issue of bonds. Acquisitions financed through debt are known as leveraged buyouts, and the debt will often be moved down onto the balance sheet of the acquired company. This article or section does not cite its references or sources. ...
The First Provincial Bank of Taiwan in Taipei, Republic of China was formerly the central bank of the Republic of China and issued the New Taiwan dollar. ...
In finance, a bond is a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity. ...
A leveraged buyout (or LBO) occurs when a financial sponsor gains control of a majority of a target companys equity through the use of borrowed money or debt. ...
A balance sheet, in formal bookkeeping and accounting, is a statement of the book value of a business or other organization or person at a particular date, often at the end of its fiscal year, as distinct from an income statement, also known as a profit and loss account (P...
Loan note alternatives Cash offers for public companies frequently include a "loan note alternative" that allows shareholders to take part or all of their consideration in loan notes rather than cash. This is done primarily to make the offer more attractive in terms of taxation - a conversion of shares into cash is counted a disposal that will trigger a payment of capital gains tax, whereas if the shares are converted into other securities, such as loan notes, the tax is rolled over. Literally a public company is a company owned by the public. ...
It has been suggested that this article or section be merged with Consideration under English law. ...
A capital gains tax (abbreviated: CGT) is a tax charged on capital gains, the profit realized on the sale of an asset that was purchased at a lower price. ...
Securities are tradeable interests representing financial value. ...
All Share Deals A takeover, particularly a reverse takeover, may be financed by an all share deal. The bidder does not pay money, but instead issues new shares in itself to the shareholders of the company being acquired. In a reverse takeover the shareholders of the company being acquired will end up with a majority of the shares in, and therefore control of, the company making the bid. A reverse takeover (RTO), also known as a back door listing, or a reverse merger, is a financial transaction that results in a privately-held company becoming a publicly-held company without going the traditional route of filing a prospectus and undertaking an initial public offering (IPO). ...
See stock (disambiguation) for other meanings of the term stock A stock, also referred to as a share, is commonly a share of ownership in a corporation. ...
Takeover mechanics
Takeovers in the United Kingdom Takeovers in the UK (meaning acquisitions of public companies only) are governed by the City Code on Takeovers and Mergers, also known as the "City Code" or "Takeover Code". The Code used to be a non-statutory set of rules that was controlled by City institutions on a theoretically voluntary basis. However, as a breach of the Code brought such reputational damage and the possibility of exclusion from City services run by those institutions, it was regarded as binding. In 2006 the Code was put onto a statutory footing as part of the UK's compliance with the European Directive on Takeovers(2004/25/EC).
The Code requires that all shareholders in a company should be treated equally, regulates when and what information companies must and cannot release publicly in relation to the bid, sets timetables for certain aspects of the bid, and sets minimum bid levels following a previous purchase of shares.
In particular:
- a shareholder must make an offer when its shareholding, including that of parties acting in concert, reaches 30% of the target;
- information relating to the bid must not be released except by announcements regulated by the Code;
- the bidder must make an announcement if rumour or speculation have affected a company's share price;
- the level of the offer must not be less than any price paid by the bidder in the three months before the announcement of a firm intention to make an offer;
- if shares are bought during the offer period at a price higher than the offer price, the offer must be increased to that price;
The Rules Governing the Substantial Acquisition of Shares, which used to accompany the Code and which regulated the announcement of certain levels of shareholdings, have now been abolished, though similar provisions still exist in the Companies Act 1985.. The Companies Act 1985 is an act of the United Kingdom Parliament enacted in 1985 which sets out the responsibilities of companies, their directors and secretaries. ...
Strategies There are a variety of reasons why an acquiring company may wish to purchase another company. Some takeovers are opportunistic - the target company may simply be very reasonably priced for one reason or another and the acquiring company may decide that in the long run, it will end up making money by purchasing the target company. The large holding company Berkshire Hathaway has profited well over time by purchasing many companies opportunistically in this manner. Berkshire Hathaway (NYSE: BRKa, NYSE: BRKb) is a company headquartered in Omaha, Nebraska, USA, that oversees and manages a number of subsidiary companies. ...
Other takeovers are strategic in that they are thought to have secondary effects beyond the simple effect of the profitability of the target company being added to the acquiring company's profitability. For example, an acquiring company may decide to purchase a company that is profitable and has good distribution capabilities in new areas which the acquiring company can utilize for its own products as well. A target company might be attractive because it allows the acquiring company to enter a new market without having to take on the risk, time and expense of starting a new division. An acquiring company could decide to take over a competitor not only because the competitor is profitable, but in order to eliminate competition in its field and make it easier, in the long term, to raise prices. Also a takeover could fulfill the belief that the combined company can be more profitable than the two companies would be separately due to a reduction of redundant functions. Distribution is one of the four aspects of marketing. ...
Critics often charge that large companies initiate takeovers in order to boost their reported revenue (sales to customers) without giving sufficient regard to profit, which generally takes a hit when a company is acquired because of all the associated costs. Also a premium is always paid if the target company is financially healthy and not already desperate to be taken over. Revenue is a U.S. business term for the amount of money that a company earns from its activities in a given period, mostly from sales of products and/or services to customers. ...
To meet Wikipedias quality standards, this article or section may require cleanup. ...
The target company has several methods to avoid a takeover, if it wishes. These include legal actions, as in the case of the Hewlett-Packard purchase of Compaq, or the use of a poison pill, as set up by Transmeta. The Hewlett-Packard Company (NYSE: HPQ), commonly known as HP, is a very large, global company headquartered in Palo Alto, California, United States. ...
Compaq was a personal computer company founded in 1982 by Rod Canion, Jim Harris and Bill Murto. ...
Poison pill began as a reference to literal poison pills (often glass vials of cyanide salts) carried by various spies throughout history, and by Nazi leaders in WWII. Spies could take such pills when discovered, eliminating any possibility that they could be interrogated for the enemys gain. ...
Transmeta NASDAQ: TMTA develops computing technologies with focus on reducing power consumption in electronic devices. ...
Most dot-com companies were created for the express purpose of being taken over with a consequent immediate profit for their owners, as opposed to the usual purpose of creating a business: to create profit for its owners over time by generating cash which is paid in dividends. A Dot-com company, or simply a dot-com, was any company that promoted itself as an Internet business during the Dot-com boom. ...
Dividends are payments made by a company to its shareholders. ...
Pros and cons of takeover Pros and cons of a takeover differ from case to case but still there are a few worth mentioning.
Pros:
- Increase in sales/revenues (e.g. Procter & Gamble takeover of Gillette)
- Venture into new businesses and markets
- Profitability of target company
- Increase market share
Cons: Procter & Gamble Co. ...
The Gillette brand logo The Gillette Company (NYSE: G) was founded by King C. Gillette in 1901 as a safety razor manufacturer. ...
- Reduced competition and choice for consumers in oligopoly markets
- Likelihood of price increases and job cuts
- Cultural integration/conflict with new management
- Hidden liabilities of target entity.
An oligopoly is a market form in which a market is dominated by a small number of sellers (oligopolists). ...
Occurrence Corporate takeovers occur readily in the United States, the United Kingdom and France. They happen only occasionally in Italy because larger shareholders (typically controlling families) often have special board voting privileges designed to keep them in control. They do not happen often in Germany because of the dual board structure, nor in Japan because companies have interlocking sets of ownerships known as keiretsu, nor in the People's Republic of China because the state majority-owns most publicly listed companies there. In Sub-Saharan Africa, corporate takeovers - particularly hostile takeovers - are infrequent because of the shallowness of the capital markets. The dual board structure, common in Germany and also used in other European countries, offers a structure of corporate governance whereby shareholders (and, often, workers) elect members of a Supervisory Board which then appoints and supervises a Management Board. ...
A keiretsu lit. ...
A state is a set of institutions that possess the authority to make the rules that govern a society, having internal and external sovereignty over a definite territory. ...
Tactics against hostile takeover In their most general meanings, the terms front end and back end refer to the initial and the end stages of a process flow. ...
In a bankmail engagement, the bank of a target firm refuses financing options to firms with takeover bids. ...
In business, when a company is threatened with takeover, the crown jewel defense is a strategy in which the target firm sells off its most attractive assets to a friendly third party or spin off the valuable assets in a separate entity. ...
The flip-in is one of five main types of poison pills, and is a common part of many modern flip-over poison pills. ...
A flip-over is one of five types of poison pills in which current shareholders of a targeted firm will have the option to purchase discounted stock after the potential takeover. ...
A Golden Parachute is a clause in the contract of a CEO or other executive officers of a corporation, that if the corporation is acquired it pays them a certain amount of money, or stock options. ...
A gray knight is an acquiring company that enters a bid for a hostile takeover in addition to the target firm and first bidder. ...
Greenmail or greenmailing is a corporate acquisition strategy for generating large amounts of money from the attempted hostile takeover of large, often undervalued or inefficient companies. ...
The Jonestown defense is an extreme corporation defense against hostile takeovers. ...
Killer bees are firms or individuals that are employed by a target company to fend off a takeover bid; these include investment bankers (primary), accountants, attorneys, tax specialists, etc. ...
In corporate finance, a leveraged recapitalization is a strategy often used to fend off a hostile acquisition. ...
A lobster trap (British English: lobster pot) is an effective way for fishermen to catch many lobsters at once when lobster fishing. ...
The lock-up provision refers to the option granted by a seller to a buyer to purchase a target company’s stock when a takeover offer is made; only the buyer will be able to purchase the stocks from this major or controlling shareholder. ...
A macaroni defense is a tactic used by target firms of hostile takeovers; it is a type of shark repellent. ...
The Nancy Reagan Defense is a tactic in corporate finance used to counter a takeover or merger bidder who has made a formal bid to shareholders to buy their shares. ...
Non-voting stock is stock that provides the shareholder very little or no vote on corporate matters, such as election of the board of directors or mergers. ...
The Pac-Man defense is a defensive option to stave off a hostile takeover. ...
A pension parachute is a form of poison pill that prevents the raiding firm of a hostile takeover from utilizing the pension assets to finance the acquisition. ...
As a variation of the poison pill defense, the people pill is an anti-takeover defense under which the current management team of the target company threatens to quit en masse in the event of a successful hostile takeover. ...
Poison pill began as a reference to literal poison pills (often glass vials of cyanide salts) carried by various spies throughout history, and by Nazi leaders in WWII. Spies could take such pills when discovered, eliminating any possibility that they could be interrogated for the enemys gain. ...
In business, a poison put has two provisions: 1) rights granted to common stockholders which gives them the option to exercise up to all of their stock to the acquiring company at an extremely high price in the event a takeover is completed, or 2) an agreement which allows the...
In literal terms, safe harbor or safe harbour is a harbor which is protected and provides safety from weather or attack. ...
A scorched earth policy is a military tactic which involves destroying anything that might be useful to the enemy while advancing through or withdrawing from an area. ...
Poison pill is a term referring to any strategy, generally in business or politics, which attempts to avoid a negative outcome by increasing the costs of the negative outcome to those who seek it. ...
A Staggered Board of Directors occurs when a corporation elects its directors periodically, instead of en masse. ...
A standstill agreement is usually an instrument of a hostile takeover defense, in which an unfriendly bidder agrees to limit its holdings of a target firm. ...
A suicide pill is a form of risk arbitrage used to thwart hostile takeover attempts. ...
A targeted repurchase is a technique used to thwart a hostile takeover in which the target firm purchases back its own stock from an unfriendly bidder, usually at a price well above market value. ...
In business, a top-up is a variation of a company’s stock repurchase program for common shareholders. ...
In the United Kingdom, treasury stocks refer to government bonds or gilts. ...
Trigger may refer to: Trigger, a mechanism to actuate the following devices gun crossbow animal trap Trigger, the cause of an event Triggering the precipitation of a dissolved material in a supersaturated solution Triggering an allergic reaction by exposure to an allergen Trigger, a thought, experience or an event that...
The voting plan is one of five main types of poison pills that a target firm can issue against hostile takeover attempts. ...
In business, a white knight may be a corporation, a private company, or a person that intends to help another firm. ...
A white squire is an anti-takeover arrangement in which a friendly bidder is solicited by a target company to defend against hostile third parties. ...
Whitemail is an anti-takeover arrangement in which the target company will sell significantly discounted stock to a friendly third party. ...
See also The phrase mergers and acquisitions or M&A refers to the aspect of corporate finance strategy and management dealing with the merging and acquiring of different companies. ...
Notes and References
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