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What is a Takeover?

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.

Keywords: reversal, takeovers, proxies, hostile takeover, tender offer, poison pill, proxy fight,