What Is a Takeover? Everything You Need to Know

A corporate takeover means one company is taking control of another. This happens when an acquirer buys a big part of another company. It might change how the company is run and what they do¹. They can do this through mergers, buying assets, or buying shares from the market. The main aim is to own more than 50% of the company’s shares. This lets them make big decisions². There are two types of takeovers: friendly and hostile. Friendly ones happen when both companies agree. Hostile ones happen even if the other company doesn’t want to¹

Key Takeaways

• A corporate takeover transfers significant control to the acquirer.
• Merger and acquisition strategies are common in takeovers.
• Friendly and hostile takeovers differ in mutual consent and opposition.
• A controlling interest usually requires over 50% of share ownership.
• Takeovers employ various methods, including share purchases and asset acquisitions.

Introduction to Takeovers

Takeovers are a big deal in business, helping companies grow and get into new areas. In June 2022, India saw a boom in business deals. The value of mergers and acquisitions hit over $82 million, beating the 2019 record of $38.1 billion³. This shows how important strategies like buying out companies are.

There’s been more M&A activity worldwide in the last five years. This shows how the trend is growing⁴. Businesses use these deals to grow bigger, lead in their markets, and benefit from larger scales³. For example, Tata bought 60% of 1Mg for $230 million³. It takes careful planning and smart investment strategies to make such deals work.

In the car industry, half of the mergers involve direct competitors⁴. And mergers in different industries have seen a 15% rise in revenue within three years⁴. These moves aim to change companies for the better, improve market dynamics, and keep businesses growing.

It’s key to know how takeovers work. Companies can buy other firms’ assets, shares, or make deals through stock markets. Sometimes, takeovers are hostile, like when L&T took over Mindtree Limited by secretly buying shares³. Each scenario shows the power of change in the business world.

Types of Takeovers

Takeovers can be very different, each kind unique in its own way. Knowing these differences can shape good acquisition strategies. It also helps companies grow successfully in the market.

Friendly Takeovers

When a company agrees to be bought, it’s a friendly takeover. Both companies work together which makes things go smoothly. Friendly takeovers are common, making up 40% of all such moves⁵. An example is when AT&T bought BellSouth in 2006 for $95.6 billion⁶.

Hostile Takeovers

Oppositely, hostile takeovers don’t have the target’s blessing. They might use surprise moves or public offers to buy. About one-fourth of takeovers are hostile, showing it’s a tough business scene⁵. The Vodafone snapping up Mannesmann for $172 billion is a famous hostile case⁶.

Reverse Takeovers

Reverse takeovers help private firms become public without an IPO. They do this by acquiring a public company first. This path offers fast entry into public markets and comes with benefits. Though not as common, it’s an intriguing option for quick market entry.

Backflip Takeovers

In backflip takeovers, the buyer ends up under the bought company. This is due to the target’s strong brand value. These takeovers are rare, less than 5% of strategies follow this path⁵.

Understanding takeover types lets companies pick the right acquisition strategies. This choice depends on their goals, like wanting a management buy-in or big market expansion.

Reasons for Takeovers

Companies aim for takeovers for several important reasons. They want to enter new areas, merge businesses, and get ahead of others. By buying another company, they can get new assets, cut down on costs, and make more money due to size. All these benefits help them control more of the market and grow over time.

Strategic Expansion

Takeovers help companies quickly jump into new markets. This way, they immediately connect with more customers, local know-how, and useful setups. For instance, the Williams Act of 1968 sets rules for buying companies to make things clear and fair⁷. This law makes sure companies think carefully before making a big move, helping them make smart choices about growing.

Eliminating Competition

Some takeovers are about beating the competition. Buying a rival can make a company more powerful and control more of the market. Hostile takeovers are one way to do this, especially with undervalued companies⁷. Shareholders sometimes push for these moves to make big changes and uncover value, giving the company an edge.

Achieving Synergies

Mergers aim for synergies to cut excess and work better together, leading to cost savings. But it’s tricky; companies sometimes pay too much, thinking they’ll save more than they do. To truly benefit⁸, companies must assess and predict outcomes wisely.

Takeovers also help firms solidify their presence and work more efficiently. By blending products and services, companies provide better solutions, earning customer loyalty and a bigger market portion.

Merging businesses correctly reduces risks and ups profits, marking a smart move for ongoing growth.

Takeover Methods

There are different ways to take over a company, each with its own plan and impact. Knowing these can help make smart decisions and use the best ways to buy a company.

Proxy Fight

In a proxy fight, a company trying to buy another persuades the shareholders to vote out the current managers. This method goes around the board of the target company to gain control by getting the support of shareholders. Carl Icahn once tried to buy Clorox for $76.50 per share in July 2011, and then offered $80 per share, making the total value $10.7 billion⁹. Even though his offer was turned down, it shows how proxy fights work by getting the shareholders to vote.

Tender Offer

A tender offer is when a buyer offers a fixed price per share to the shareholders of the target company. This price is usually higher, tempting shareholders to sell their shares quickly. For example, Green Growth Brands made an all-stock offer to buy Aphria in December 2018 for $2.35 billion¹⁰. Though Aphria’s board and shareholders said no, tender offers can still force shareholders to sell by offering high prices.

Creeping Takeover

A creeping takeover is a slow method where a company buys shares over time to gain control. This way, the target company’s management and shareholders don’t get scared off suddenly. It’s a careful plan that avoids causing alarm or market surprises while gaining more control carefully.

Understanding how takeovers work helps with better strategy and action plans for buying a company. Whether through proxy fights, tender offers, or creeping takeovers, each method has its uses and things to watch out for, matching different goals.

Examples of Takeovers

Studying historic mergers and acquisitions teaches us a lot about corporate restructuring. The merger between Anheuser-Busch InBev and SABMiller in 2016 was worth $104.3 billion¹¹. It reshaped the beer industry and showed the complexity of big corporate deals.

The Cadbury PLC and Kraft Foods deal is another key example. Kraft’s first offer of $16.3 billion was not accepted. They then raised their offer to $19.6 billion in 2010¹¹. This shows that persistence is crucial in giant mergers when the first offer is rejected.

In 2018, The Walt Disney Company bought Twenty-First Century Fox, Inc. for $71.3 billion. Shareholders received $38 per share, which was a significant payout¹².

In 2011, Sanofi-Aventis made a $20.1 billion cash offer for Genzyme Corp¹¹¹³. After the deal, Sanofi-Aventis had issues with FDA applications. They ended up paying $315 million to CVR holders in 2019¹¹. This case shows the challenges companies may face after merging.

Carl Icahn’s attempts to take over Clorox demonstrate defensive strategies companies use against activist investors¹². It shows how important the role of company boards is in takeovers.

These cases teach us about different strategies in takeovers. From fights for control to buyout offers, each case reveals lessons on corporate ambition and strategy.

Understanding Takeover Bids

In the business world, companies can change their future with takeover bids. These bids come in various types, each with its own strategy. They can really shake up both the company making the bid and the one being targeted.

Friendly Bids

Friendly bids happen when both companies talk and agree on the buyout terms. They make sure everything is settled smoothly. The deal must last between one month to a year, following rules¹⁴. After getting 90% of the shares, the rest can be bought by force¹⁵. These bids are for growing and can be paid in cash, shares, or both¹⁵.

Hostile Bids

Hostile bids ignore the target company’s leaders and go straight to the shareholders. They often start by buying up to 19.9% of the company’s shares¹⁵. These can last a year, especially if the target company fights back¹⁵. To win over shareholders, a price higher than the market value is offered¹⁶. The goal is to take control without needing the board’s okay.

Reverse Bids

A reverse bid is when a private company wants to buy a public one. It’s a way for the private company to get into the stock market. Though rare, reverse bids open new investment doors, letting private companies grow. The deal must be fair to all shareholders, involving cash, shares, or both¹⁴. It needs careful planning to meet the buyer’s long-term goals.

Backflip Bids

Backflip bids make the buyer a part of the target company. This works well when the target has something valuable. These bids can strengthen market positions for both companies. The offer can increase but not decrease during the bid¹⁴. By joining forces, the buyer gets a valuable spot in a bigger corporation.

Each bid type—friendly, hostile, reverse, and backflip—has its own purpose. Whether it’s to grow or take control, knowing these bids helps make smart choices in mergers and buyouts. The choice of bid reflects the goal and investment size needed.

Funding Takeovers

When we talk about funding takeovers, several financial options exist. These include cash, stock swaps, and leveraged buyouts. Each plays a key role in acquisition financing.

Cash Payments

Cash payments are the simplest way to fund a takeover. Here, the buying company directly offers cash to the selling company’s shareholders. Cash payments are popular because they clear up financial talks. This usually makes deals more attractive to shareholders.

Stock Swaps

In stock swaps, the buying company trades its own shares for the seller’s shares. This is common when the buyer wants to save cash. Stock swaps help in equity financing. Both parties benefit from the share exchange¹⁷. Plus, this can be appealing if the buyer’s stock market performance is strong.

Leveraged Buyouts

Leveraged buyouts (LBOs) are favored for big purchases. An LBO lets a company buy another using lots of borrowed money. This debt is often backed by the purchased company’s assets. It lets the buyer enhance their equity return¹⁸¹⁹. LBOs of big companies grew popular in the 1980s¹⁷. They are still a big part of corporate debt strategies.

Leveraged debt enables big takeovers with little initial cash¹⁹. It makes financing a complex balance between debt and equity¹⁸. Companies like Kolberg Kravis and Roberts grabbed attention with a huge $25 billion buyout in 1989¹⁷.

Leveraged buyouts and takeover funding have changed, especially after tax laws like the US Tax Cuts and Jobs Act of 2017¹⁹. Private equity and hedge funds keep playing a crucial role in financing these deals¹⁸.

What Is a Takeover?

A takeover happens when a company buys most of another company. This often brings big changes for both. The word “takeover” started being used in 1618²⁰. Over the years, the idea of takeovers has grown to include more than just business.

Takeovers can also occur in government, like the military takeover in 2002²⁰. This shows that takeovers happen outside of the business world too. In Los Angeles, takeovers involve “flash mobs” with lots of people and cars²¹. Social media helps organize these large gatherings, showing how takeovers have changed²¹.

The Brat summertime takeover is another example, where fans gather to start a trend²⁰. Sometimes, these gatherings lead to illegal activities, like street racing, which has grown since the pandemic started²¹. Street racing in L.A. has become more organized, making it hard for the police to handle²¹.

Street takeovers happen all over the U.S., impacting many communities²¹. Police are always finding new ways to stop these events²¹. But it’s hard to know how widespread they are because not all are reported²¹. This makes it tough to monitor and control these happenings.

Takeovers vary widely, from business deals to disruptive events. Their history and current role show how complex and impactful they are. Social media’s involvement in planning takeovers, along with the challenges for police and communities, shows their broad effects.

Impact of Takeovers

Takeovers can change the game for companies, targets, and those with stakes in the deal. Let’s dive deeper into what happens:

On the Acquirer

When a company buys another, it might gain market power and see benefits from joining forces. These could raise value for shareholders but mixing two companies can be tough. Research shows that buyers don’t always see their stocks go up in the long run²².

Buying a company in a different industry can also mean more business diversity. This might lead to hiring more people²³. But, it can shake up how the buyer’s finances are structured²⁴.

On the Target

Companies being bought might take a new path and get access to more resources. The sellers usually get extra money for their shares, yet the merger might not boost profits²². Merging could either make things run smoother or lead to clashes between different company cultures.

When firms in the same industry combine, they often have to cut jobs²². Also, being bought can affect a company’s market standing and financial setup²⁴.

On Stakeholders

Takeovers have mixed effects on folks with a stake in the game. Workers may worry about job security, especially with unfriendly takeovers meant to keep managers in line²². Yet, some mergers can create more jobs, depending on why they happened²².

Customers might get better products thanks to the strengths of both companies combining. How jobs are affected truly depends on the takeover’s type²²²⁴.

Conclusion

In the business world, takeovers are key actions that can change market rules, spark growth, and touch every part of a business. They can happen on friendly terms or not, with friendly ones being when both sides agree²⁵. Companies often aim to grow bigger, cut costs, and grab more of the market through these moves²⁵. Getting good at handling takeovers is essential for business success. It’s important for those in business and investing to get the hang of them.

Good planning is at the heart of any takeover’s success, with preparation playing a big role²⁶. Having a strong plan and clear goals can really help win a takeover. It’s also key to deal with challenges after, like blending teams and cultures, for success over time²⁶. Investors need to weigh the good and the bad, like high costs and tricky valuations²⁵.

Being part of a takeover can mean more money for shareholders, as their shares often go up in value²⁵. Sometimes, a company might need to try to buy all another company’s securities, especially if wanting full control or to remove it from the stock market²⁷. Knowing about different kinds of takeover bids, like mandatory or competitive ones, helps in making smart investment choices. By understanding takeovers well, you can make choices that lead to growth and success.

Source Links

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