Takeover

Abstract: Takeovers have become very common these days. Takeover depends on the purpose for which the process is being initiated. The different types of takeovers are given below. In order to bring about a takeover, there has to be sufficient finance to do the same. In a hostile takeover, target companies may revolt against the decision of the acquiring company by embracing many measures. Some of them are given below.
(A) Takeover- Features: Takeover is referred to as an action performed by the corporate houses wherein a tender offer is placed by the bidder or the company, which intends to take control of all or part of the stock of shares of the target or the subject firm. The SEC or Securities And Exchange Commission lays down certain rules pertaining to the takeovers. It envisages that any offer, which has a proposal for acquiring shares exceeding 5 percent of the total stock of shares, the same should be informed at the earliest. A takeover may be completed for various reasons. A takeover may be strategic or opportunistic.
(i) Friendly takeover: The tender offer prepared by the acquiring firm is produced before the Board of Directors. If it is felt by the Board of Directors that the particular takeover referred to in the offer is deemed to be in the best interest of the shareholders, the tender offer will be accepted and the normal course of the takeover follows. This is referred to as a friendly takeover.

(ii) Hostile takeover: On the contrary, if the Board of Directors feel that the tender offer has certain terms and conditions, which will inflict harm to the interests of the shareholders, the Board refuses the tender offer. Under such circumstances, if the acquiring company continues to pursue the execution of the tender offer, it is known as a “hostile takeover”. In fact, a takeover is hostile when the following conditions are fulfilled.

(a) The Board does not approve of the tender offer and the bidder continues to make efforts to get it approved.

(b) In the event, when the Board was not informed at all about the offer. (B) Reverse takeover: If a private company wishes to become a public firm but simultaneously wants to avoid the hassles involved in becoming one through the IPOs, a reverse takeover is the best resort. In a reverse takeover, private company takes over the control of a public company. IPOs also serve as a good means of transforming into a public company but one has to go through a series of events. In other words, IPOs involve a time consuming process and is complex as compared to a reverse takeover. (C)Funding a takeover: Takeovers are financed by either of the following processes. The funding method adopted is case specific.

Share deals: This occurs mainly in the case of reverse takeovers.

Cash: The acquiring firm pays for taking over the target company and pays cash as compensation or the price for taking over the control of the target firm.

Loan note: Mainly pertains to take overs of public companies. (D) Advantages of Takeover: There are many advantages of a takeover. They are:
Economies of scale increases.
Increase in market shares
The target company is profited
Sales as well as revenues increase
Brand portfolio gets magnified.

(E) Disadvantages of takeover:
There are risks associated with the latent liabilities of the target firm, which the acquiring company is not aware of.
Many people might get unemployed
There are chances of increase in costs
Employees may take time to reorient themselves to the new environ.

(F) Weapons used to fight back hostile takeover: There are many ways by, which a target company, not interested in being taken over may resist the intentions of the acquiring company from succeeding in their mission. There are many but some of the prominent ones are given below. They are as follows:
Bankmail
Greenmail
Flip in
Flip Over
Killer bees
Golden parachute
Lobster trap
Poison pill
People pill
White knight
Pension parachute
Targeted repurchase.

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Takeover

 

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Last Updated on : 29th July 2013