BROWSE

Takeover

What is a 'Takeover'

A takeover occurs when an acquiring company makes a bid in an effort to assume control of a target company, often by purchasing a majority stake. If the takeover goes through, the acquiring company becomes responsible for all of the target company’s operations, holdings and debt. When the target is a publicly traded company, the acquiring company makes an offer for all of the target’s outstanding shares.

Explaining 'Takeover'

A welcome takeover, such as an acquisition or merger, generally goes smoothly because both companies consider it a positive situation. In contrast, an unwelcome or hostile takeover can be quite aggressive as one party is not participating voluntarily.

Hostile Takeover

The acquiring firm can use unfavorable tactics, such as a dawn raid where it buys a substantial stake in the target company as soon as the markets open, causing the target to lose control of the company before it realizes what is happening. The target firm’s management and board of directors may strongly resist takeover attempts through tactics such as a poison pill, which lets the target’s shareholders purchase more shares at a discount to dilute the acquirer’s holdings and make a takeover more expensive.

Reasons for a Takeover

A takeover is virtually the same as an acquisition, except the term "takeover" has a negative connotation, indicating the target does not wish to be purchased. A company may act as a bidder by seeking to increase its market share or achieve economies of scale that help it reduce its costs and thereby increase its profits. Companies that make attractive takeover targets include those that have a unique niche in a particular product or service; small companies with viable products or services but insufficient financing; a similar company in close geographic proximity where combining forces could improve efficiency; and otherwise viable companies that are paying too much for debt that could be refinanced at a lower cost if a larger company with better credit took over.

ConAgra’s Hostile Takeover Attempt of Ralcorp

ConAgra initially attempted a friendly sale to acquire Ralcorp in 2011. When initial advances were rebuffed, ConAgra intended to work a hostile takeover. Ralcorp responded by using the poison pill strategy. ConAgra responded by offering $94 per share, which was significantly higher than the $65 per share price Ralcorp was trading at when the takeover attempt began. Ralcorp denied the attempt, though both companies returned to the bargaining table the following year.


Further Reading


The performance of UK firms acquiring large cross-border and domestic takeover targets
www.tandfonline.com [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

The price of corporate acquisition: determinants of cash takeover premiaThe price of corporate acquisition: determinants of cash takeover premia
www.tandfonline.com [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

State takeover statutes and shareholder wealth.State takeover statutes and shareholder wealth.
elibrary.ru [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

Financing bidders in takeover contestsFinancing bidders in takeover contests
www.sciencedirect.com [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

A hostile takeover of nature? Placing value in conservation financeA hostile takeover of nature? Placing value in conservation finance
onlinelibrary.wiley.com [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

Characteristics of Takeover Targets in China Equity Market <span style=[J]' src='/thumbnails/?img=http%3A%2F%2Fen.cnki.com.cn%2FArticle_en%2FCJFDTotal-JJYJ200311005.htm' />Characteristics of Takeover Targets in China Equity Market [J]
en.cnki.com.cn [[J]' href='https:/api.miniature.io/pdf?url=en.cnki.com.cn%2FArticle_en%2FCJFDTotal-JJYJ200311005.htm'>PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

ESOPs, takeover protection, and corporate decision-makingESOPs, takeover protection, and corporate decision-making
link.springer.com [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

Do managers make takeover financing decisions that circumvent more effective outside blockholders?Do managers make takeover financing decisions that circumvent more effective outside blockholders?
www.sciencedirect.com [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

Does the 'Market for Corporate Control'hypothesis explain takeover targets?Does the 'Market for Corporate Control'hypothesis explain takeover targets?
www.tandfonline.com [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …



Q&A About Takeover


When do you use "merger" instead of "acquisition"?

You use "merger" instead of "acquisition" when both firms come together as one unit without any change in management control or ownership structure .

What are some reasons for taking over another firm?

Some reasons include increasing market share or achieving economies of scale that help reduce costs and increase profits.

When do you use "takeover" instead of "merger"?

You use takeover instead of merger when the acquiring firm obtains control over the target firm .

What does "takeover" mean?

Takeover means to acquire control of something (a business) by buying up a majority of its shares.

When does a takeover occur?

A takeover occurs when an acquiring firm makes an offer to purchase shares of another firm.

Why would someone want to buy another person's shares rather than merge with them ?

The main reason why someone would want to buy another person's shares rather than merge with them would be because they believe that they can make more money if they owned 100% shareholding rather than 50

How are mergers and acquisitions different from each other?

Mergers occur when two companies consolidate their assets and liabilities under one company, while in an acquisition, only the assets and liabilities are taken over by another company.

What does M&A stand for?

M&A stands for mergers and acquisitions.

What is a merger?

A merger is the consolidation of two entities into one.

How can you resist a hostile takeover?

You can resist with tactics such as poison pills.

What is an acquisition?

An acquisition occurs when one entity takes ownership of another entity's stock, equity interests or assets.

What is a takeover?

A takeover occurs when an acquiring company makes a bid in an effort to assume control of a target company, often by purchasing a majority stake. If the takeover goes through, the acquiring company becomes responsible for all of the target companies operations, holdings and debt.

Who might be interested in taking over your business?

Companies that make attractive targets include those with unique niches; small companies with viable products or services but insufficient financing; similar companies in close geographic proximity where combining forces could improve efficiency; otherwise viable companies paying too much for debt that could be refinanced at lower cost if larger company took over; and other firms seeking growth opportunities or increased market share.

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