Corporate takeovers are transactions in which a buyer acquires a controlling interest in a company by means of a stock purchase or tender offer. A takeover can occur through a friendly acquisition or an unfriendly, hostile acquisition. In a friendly takeover, the target company agrees to the takeover and issues a recommendation that its shareholders accept the offer. With a hostile takeover, the target company rejects the offer, but the buyer persists in purchasing stock and launching a proxy fight with the final goal of gaining control of the company.
When a company gets taken over, it can yield a wide range of outcomes. Generally, those involved benefit in some way. Shareholders benefit because they usually receive money for their shares in the company at a higher price than what the stock was trading for before the takeover. The buyer will likely benefit from cost savings when consolidating companies, as well as from any enhanced market presence and/or product line that the acquisition brings. On the flip side, existing management may feel threatened and employees can worry about their job stability.
The takeover process generally involves a few stages.
The first stage is the announcement of the offer. The buyer, in order to acquire control of the target company, usually announces a tender offer to acquire all of the outstanding shares at a certain price. The buyer also sets a timeline for the offer and must also register with the U.S. Securities and Exchange Commission (SEC).
After the offer is announced, the target company begins the evaluation process. This includes a review of the offer and an evaluation of the strategic implications of a takeover. At this stage, the target company’s board of directors has the responsibility of acting in the best interest of all shareholders. The target company is not obligated to accept the offer, but the board must make a recommendation to the shareholders whether to accept or reject the offer.
The third stage is the negotiation of a definitive agreement. This agreement specifies the terms and conditions of the takeover, including the offer price. If a merger agreement is reached, the process then moves forward towards the closing, which is the actual transfer of money and shares to consummate the deal.
The fourth and final stage is the completion of the merger. When the definitive merger agreement has been accepted, the buyer can move forward with the transaction, usually through a stock swap or cash payment, which is dependent on the terms of the agreement. After the transaction is complete, the target company is usually delisted from its stock exchange.
Any company subject to a takeover must be aware that the process can be precarious. It is important to have an experienced advisor and lawyer to navigate the process for a favorable outcome. Careful preparation and timely responses are essential to a successful defense when making decisions about a corporate takeover.
