The reciprocation of the target company, the approach of the acquiring company plays a vital role in the entire process. The commencement of the process of mergers and acquisition is marked with a "tender offer". A tender offer is an offer wherein the purchase of all or some of the shares belonging to the shareholders is intended. The price fixed for the same is of a premium rate as compared to the market price. The laws formulated by the SEC or Securities And Exchange Commission necessitates that if a company or an individual acquires 5% stock in a company, the same should be conveyed to the SEC. A tender offer may either be a "friendly" one or an "unfriendly" one. A company, which intends to acquire a company eventually buys out all the shares of the target company. However the limit is restricted to only 5% and the outstanding shares are reported as SEC. Declaration about the number of shares (the ones,which have been bought and the outstanding ones) are made before the SEC.
The total price the acquiring company is ready to pay for the target company and its assets is worked out with assistance from investment bankers as well as the financial advisors. Thereafter the tender offer is published informing the shareholders about the offer price as well as deadlines for either rejecting the offer or accepting it.
Reaction of the target company:
The target company responds to the above course of action in any one of the following ways:
(I) Agree with the Offer terms: In the event it is felt by the top level executives and managers that the offer price may be accepted, the deal of merger or acquisition is struck.
(II) Try to negotiate: If the terms offered by the acquiring company is not acceptable, then the shareholders of the target company will try to negotiate the deal of merger or acquisition. The shareholders and the top level management of the subject company will try to work out issues so that they do not lose their jobs and simultaneously see the interest of the target company.
(III) Looking for a White Knight: A White Knight is referred to another company, which would like to go for a friendly take over of the subject company, thereby saving the target or the subject company from falling prey to that company, which is intending for a hostile takeover of the target company.
(IV) Using a Poison Pill: The target company uses a Poison pill wherein it attempts to make its assets or shares less appealing to the company, which is attempting the tale over. The target company may do it by two methods:
(a) By using a "flip in": Permits the prevailing shareholders of the target company to buy shares at a discounted rate.
(b) By using a "flip over": Permits the shareholders to buy stakes of the acquiring company at a discounted rate after the merger has taken place.
Closure of the deal of merger or acquisition:
When the tender offer has been finally agreed upon by the target company and after fulfilling certain regulatory criteria, the deal of merger or acquisition is executed wherein some kind of transaction takes place. During the course of the transaction, the company, which buys the target company makes payment with stock, cash or with both.