Important Terms Relating To Mergers And Acquisitions

Important terms relating to mergers and acquisitions are vital to the understanding of the entire process of mergers and acquisitions.

Every word encountered in the process of mergers and acquisitions need to be carefully understood for a sound understanding of the subject.

There are many important terms relating to mergers and acquisitions. These terms may appear to be completely unrelated to mergers and acquisitions but nevertheless, these terms may indicate a very important process in mergers and acquisitions. Some of the important terms relating to mergers and acquisitions are as follows:

Mergers

When two or more companies combine. The shareholders of the target firm are adequately compensated for, if the merger is effected. Acquisition
When one company acquires another company. The company, that is acquired is known as target firm. The company, which acquires is called acquiring company. An acquisition may be either friendly acquisition, when both the companies agree to the tender offer or may be unfriendly acquisition when the companies do not agree with the tender offer.

Takeover

Takeover may be referred to as a corporate activity when a company places a bid for acquiring another company. The company, which intends to take over the target firm makes an offer of the “outstanding shares” in case the target firm is traded publicly.

Hostile takeover

Is defined as an “unfriendly takeover”. Such actions are usually revolted against by the managers and executives of the target firm.

People pill

Under some circumstances of hostile takeover, the people pill is used to prevent the takeover. The entire management team gives a threat to put in their papers if the takeover takes place. Using this strategy will work out provided the management team is very efficient and can take the company to new heights. On the other hand, if the management team is not efficient, it would not matter to the acquiring company if the existing management team resigns. So, the success of this strategy is quite questionable.

Sandbag

Sandbag is referred to as the process by which the target firm tends to defer the takeover or the acquisition with the hope that another company, with better offers may takeover instead. In other words, it is the process by which the target company “kills time” while waiting for a more eligible company to initiate the takeover.

Shark Repellent

There are instances when a target company, which is being aimed at for a takeover resists the same. The target firm may do so by adopting different means. Some of the ways include manipulating shares as well as stocks and their values. All these attempts of the target firm resisting its acquisition or takeover are known as shark repellent.

Golden parachute

Is yet another method of preventing a takeover. This is usually done by extending benefits to the top level executives lest they lose their portfolio/jobs if the takeover is effected. The benefits extended are quite lucrative.

Raider

May be referred to an acquiring company, which is always on the look out for firms with undervalued assets. If the company finds that a company (target) does exists whose assets are undervalued, it buys majority of the shares from that target company so that it can exercise control over the assets of the target firm.

Saturday Night Special

Saturday Night Special is referred to as an action of the corporate companies, whereby one company makes an attempt to takeover another company all of a sudden by executing a public tender offer. The name is derived from the fact that such attempts were made towards the weekends. However, such practices have been stopped as per Williams Act. It has now been obligatory that if a company acquires more than 5% of stocks from another company, this has to be reported to the SEC or the Securities Exchange Commission.

Macaroni defense

This is referred to the policy wherein a large number of bonds are issued. At the same time the target company also assures people that the return on investment for these bonds will be higher with the takeover has taken place. This is another strategy embraced by the target firm for not succumbing to the pressures of the acquiring company.

 

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