Understanding the Intricacies of a Corporate Takeover
The Nature and Structure of a Takeover
A corporate takeover, in its most fundamental sense, is an acquisition maneuver in which one company, referred to as the acquirer, makes a successful bid to seize control of or acquire another company, known as the target. Generally, takeovers are initiated by a larger company aiming to subsume a smaller entity under its corporate umbrella. However, the scale is not the only determining factor; the strategic objectives of the acquiring company and the potential value derived from the target company also significantly influence this decision.
Takeovers can occur through different structural pathways. Acquirers can either buy a controlling interest in the company's outstanding shares or acquire the entire company outright. In some cases, the acquired company may be merged with the acquirer to create new synergies or could be retained as a subsidiary.
Friendly vs. Hostile Takeovers
The tone of a takeover can be either friendly or hostile. A friendly takeover, or a voluntary takeover, is one where the acquirer and the target mutually agree to the terms of the takeover. In contrast, a hostile takeover takes place when the acquirer initiates the process without the knowledge or agreement of the target company's management.
A crucial instrument in facilitating a takeover, whether friendly or hostile, is a tender offer. In such an offer, the acquiring company proposes to buy a significant block of shares from the target company's shareholders, typically at a premium over the market price. The shareholders then have a set period to decide whether to accept the offer.
Strategies to Counter Hostile Takeovers
In cases of hostile takeovers, target companies often have strategic defenses in place, such as the poison pill policy. This clause allows all shareholders to purchase a new discounted issue of stocks if an acquirer initiates certain actions, thereby diluting the ownership concentration and making the takeover attempt more expensive and less appealing.
Hostile takeovers may also be attempted through proxy fights, where the acquirer lobbies existing shareholders to vote for a new set of board members amenable to the acquisition. However, the decreasing trend in hostile takeovers can be attributed to the widespread adoption of poison pill strategies, making such hostile attempts less common.
Variations of Takeovers: Reverse and Back Flip Takeovers
Additionally, it's important to note the variants of traditional takeovers. Reverse takeovers occur when a private company with significant capital buys out a publicly traded company, becoming publicly traded itself without the complexities of "going public" or organizing an initial public offering (IPO).
In a backflip takeover, a less prominent company acquires a well-known company and re-brands itself under the name of the better-known company. These strategic maneuvers help smaller companies leverage the market presence and resources of the more established company to boost their market value and presence.
A takeover is a strategic corporate maneuver employed by companies to achieve various objectives, ranging from finding value in a target company to initiating a substantial change or even eliminating competition. The process of a takeover, be it friendly or hostile, is complex and involves various strategic decisions at the management level. Understanding the intricacies of a corporate takeover is essential for both investors and corporations to navigate the ever-evolving business landscape.
Summary:
A takeover is an acquisition done through the procurement of enough equity interest to govern a company from the board of directors.
Takeovers can be hostile or friendly, and may involve a tender offer from the acquiring company who seeks to buy a large block of shares. Takeover carries a negative connotation, since in peaceful circumstances this is usually called an acquisition.
An acquiring corporation will offer to buy enough shares to have a controlling interest in the company in what is called a tender offer. Shareholders of the target company will have a set amount of time to decide whether they would like to take the offer, which is normally to buy the shares at a premium over the market price.
In the case of a hostile takeover, a board may put a poison pill clause into place that says all shareholders will be able to buy a new discounted issue of stocks if an acquirer triggers the appropriate circumstances.
Hostile takeovers can be attempted through proxy fights in which shareholders are lobbied to vote for new board members that will pave the way for an acquisition, through a tender offer, or through a combination of the two. Due to the popularity of poison pill policies, however, hostile takeovers are less and less common.
Reverse takeovers are when a private company with substantial capital buys out a publicly traded company and becomes publicly traded without the trouble of “going public” or organizing an initial public offering. A back flip takeover is when a lesser-known company acquires a better-known company and re-brands itself as the better known company.