Takeover

A corporate action where an acquiring company makes a bid for an acquire. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares. A welcome takeover is usually referring to a favorable and friendly takeover. Friendly takeovers generally go smoothly because both companies consider it a positive situation. In contrast, an unwelcome or hostile takeover can get downright nasty!

Hostile Takeover

In a tender offer the bidding company makes its offer directly to the shareholders of the target firm. This action sometimes occurs if the target company’s board has turned down the bidder’s merger proposal. The bidder asks shareholders to tender, or sell, their shares at a stated price, usually 15% to 25% above the tar-get firm’s current share price. Shareholders then decide whether they prefer the bidder’s cash offer or want to continue to own the shares of the company operated by the incumbent management team. If enough shareholders tender their shares, the bidder obtains voting control of the company, elects a new board, and replaces the managers. Hostile tender offers can become quite acrimonious, with both sides placing ads in the financial press explaining why their position is superior and why shareholders should or should not tender their shares.

Sometimes a takeover attempt that is strongly resisted by the target firm, then hostile takeover takes place. Hostile takeovers are usually bad news, as the employee moral of the target firm can quickly turn to animosity against the acquiring firm.

There are several ways that two or more companies can combine their efforts. They can partner on a project, mutually agree to join forces and merge, or one company can outright acquire another company. Here are some of the various intriguing ways that takeovers can take place:

• Hostile Takeover – This is a takeover attempt that is strongly resisted by the target firm. These types of takeovers are usually bad news since the employee morale of the target firm can quickly turn to animosity against the acquiring firm. There is usually a reason why the acquirer had to resort to a hostile takeover rather than a friendly one.
• Dawn Raid – Here a firm or investor buys, first thing in the morning when the stock markets open, a substantial amount of shares in a company. Usually a brokerage does the buying on behalf of the acquirer (the “predator”) to avoid drawing attention to the buying. It builds up a substantial stake in its target (the “victim”) at the current stock market price. Because this is done early in the morning, the target firm usually doesn’t get informed about this until it is too late, when the acquirer has already scooped up controlling interest.
• Saturday night special – This is a sudden attempt of one company to take over another by making a public tender offer. The name comes from the fact that this practice used to be done over the weekends.