In business, a takeover denotes one firm buying another firm. The buyer firm is termed as the bidder or acquirer company and the firm, which is being taken over is known as the target company. In the United Kingdom, the expression takeover represents the acquirement of a public company, the stocks of which are registered with a stock exchange in opposition to the acquisition or takeover of a private company.
The takeover schemes can be broadly categorized into the following types:
In case of a private firm, there is a probability that the board of directors and the stockholders are the same individuals or they have an intimate relationship among them. Hence every private acquisition has the probability of being friendly takeovers. This is due to the reason that in case the stockholders have accorded regarding the sale of the company, then whatever be the constitution of the board of directors, it would normally be agreeable to the decision of the shareholders.
This may also happen because the board of directors has to adequately function according to the decision of the shareholders for collaborating with the acquirer. However, this aspect is not found in the United Kingdom takeover ideas, where only public companies can be acquired.
While an acquirer places a tender offer for another firm, it would normally communicate with the board of directors of the target company in advance. In case the board of directors senses that the shareholders should get the best treatment if the tender offer is accepted, it would advocate for the acceptance of the tender offer by the stockholders. A takeover is regarded as a hostile takeover in case the tender offer is disapproved by the board, nevertheless, the acquirer carries on to act on it or in case the acquirer places the tender offer without communicating to the board of directors in advance.
The principal aftermath of an offer to be regarded as hostile is practical instead of legal. The majority of banks do not support hostile takeovers.
A reverse takeover is a form of takeover, in which case a public company is acquired or taken over by a private company. This happens at the abetment of the private company that is bigger than the public company. The intention behind this is the efficacious floating of the private company when averting time and a number of costs associated with a traditional IPO.
There are a number of ways to finance a takeover and they include the following:
Cash: A firm buying another firm would often make the payment for takeover with the help of cash. The cash can be obtained as a loan from the bank or collected through issuance of bonds. When takeovers are funded by debt or loan, they are termed as leveraged buyouts.
All share deals: A takeover, specifically a reverse takeover can be funded through an all share deal. Here the acquirer does not make any cash payment, rather fresh shares are issued by the bidder to the stockholders of the firm that is being taken over.
Loan note alternatives: The cash bids for public companies often contain a loan note alternative, which permits the stockholders to get a portion or their entire promised amount in loan notes instead of cash. This carries lucrative tax benefits.
In the United Kingdom, the takeovers are regulated by the City Code on Takeovers and Mergers. This code is also termed as the Takeover Code or City Code.
The comprehended pros and cons of takeover include the following:
Venturing into new markets and commercial activities
Growth in sales/revenues (for example, Procter & Gamble taking over Gillette)
Growth in market share
Profitability of target firm
Decrease of overcapacity in the industrial sector
Reduced competition (from the viewpoint of the acquiring firm)
Growth in economies of scale
Expansion of brand portfolio (for example, L’Oreal taking over Bodyshop)
Probability of price hikes and decrease in employment opportunities
Decreased competition and option for customers in oligopoly markets
Concealed obligations of target company
Cultural integration/differences with new management
Corporate takeovers are frequently seen in the United Kingdom, France, and the United States.
Last Updated on : 27th June 2013