In business, takeover is the purchase of one company ( target ) by another party (the acquiring party , or bidder > ). In the UK, this term refers to the acquisition of public companies whose shares are listed on the stock exchange, in contrast to the acquisitions of private companies.
The management of the target company may or may not agree with the proposed takeover, and this has resulted in the following take-over classification: friendly, hostile, reverse or reverse. Takeover financing often involves borrowing or bond issues that may include junk bonds as well as simple cash bids. It could also include shares in a new company.
Video Takeover
Type
Friendly
A friendly takeover is an acquisition approved by the target company's management. Before a bidder makes a bid for another company, he usually first notifies the company's board of directors. In an ideal world, if the board feels that accepting an offer to serve its shareholders is better than rejecting it, it recommends the offer accepted by the shareholders.
In private companies, because shareholders and councils are usually the same person or in close contact with each other, personal acquisitions are usually friendly. If the shareholder agrees to sell the company, then the board is usually of the same or sufficient mind under the orders of equity shareholders to cooperate with the bidder. This point is irrelevant to the concept of a British takeover, which always involves the acquisition of public companies.
Hostile
An unfriendly takeover allows a bidder to take over a target company whose management is not willing to approve a merger or takeover. Takeovers are considered hostile if the target company's board declines the offer, and if the bidder continues to pursue it, or the bidder makes a direct offer after announcing his firm intent to make the offer. The development of hostile tenders is attributed to Louis Wolfson.
A hostile takeover can be done in several ways. A tender offer can be made in which the acquiring company makes a public offering at a fixed price above the current market price. The tender offerings in the United States are governed by Williams Act. The acquiring company may also engage in proxy combat, where it tries to persuade sufficient shareholders, usually a simple majority, to replace management with a new one who will approve a takeover. Another method involves quietly buying enough stock on the open market, known as a crawling tendering bid, to produce a change in management. In all these ways, management rejected the acquisition, but it was still done.
In the United States, a common defense tactic against hostile takeovers is to use section 16 of Clayton's Law to seek orders, arguing that section 7 of that action would be infringed if the bidder obtained the target share.
The main consequence of a bid that is considered to be hostile is practical rather than legal. If the target council is working together, the bidder can perform extensive due diligence into the affairs of the target company, providing bidders with a thorough analysis of the target company's finances. Conversely, a hostile bidder will only have more limited, publicly available information about the target company available, making bidders vulnerable to hidden risks associated with the target company's finances. An additional problem is that takeovers often require loans provided by banks to serve the offer, but banks are often less willing to support a hostile bidder because of the lack of relative target information available to them.
A famous example of a highly hostile takeover is Oracle's bid to acquire PeopleSoft.
By the end of 2018, about 1,788 take offs are hostile to a total value of 2,886 bil. USD has been announced.
Flip
Reverse takeover is a takeover in which a private company acquires a public company. This is usually done at the instigation of private companies, the goal being for private companies to effectively float themselves while avoiding some of the costs and time involved in conventional IPOs. However, in the UK under AIM rules, an inverse takeover is an acquisition or acquisition within a twelve month period for which AIM companies will:
- exceeds 100% in one of the class tests; or
- produces fundamental changes in its business, board control or voting; or
- in the case of an investment company, deviates substantially from the investment strategy expressed in its acceptance document or, where no receipt documents are made upon receipt, substantially deviate from the investment strategy stated in its pre-acceptance announcement or, substantially departed of investment strategy.
Individuals or organizations, sometimes known as corporate robbers, can buy most of the company's stock and, thus, get enough votes to replace the board of directors and CEO. With this exciting new management team, this stock, potentially, is a far more attractive investment, which can lead to price and profit increases for corporate robbers and other shareholders.
A notable example of an upside takeover in the UK is the takeover of Optare plc by Darwen Group in 2008. It is also an example of a back-flip takeover (see below) when Darwen renamed the more famous Optare.
Backflip
The retrieval of backflip is any acquisition where the acquiring company turns into a subsidiary of the purchased company. This type of takeover can occur when larger but less reputable companies buy companies that are struggling with very well known brands. Examples include:
- Takeover Air Airlines Corporation by Airline Texas but take the name Continental as it is better known.
- SBC Takeover from AT & amp; T who is sick and renamed AT & amp; T.
- Westinghouse's 1995 purchase of CBS and 1997 changed its name to CBS Corporation, with Westinghouse becoming a brand name owned by the company.
- The takeover of Bank of America by NationsBank, but adopted the name Bank of America. Likewise, Norwest buys Wells Fargo but retains the latter due to the recognition of his name and historical heritage in West America.
- Acquisition of Interceptor Entertainment over 3D Realms, but still use the name Realms 3D.
- Nordic games buy THQ assets and trademarks and change their name to THQ Nordic.
- Infogrames Entertainment, SA becomes Atari SA
Maps Takeover
Financing
Funding
Often companies that earn other parties pay a certain amount for it. This money can be raised in several ways. Although the company may have sufficient funds available on its account, it sends the full payment of cash earned by an unusual company. More often, it will be borrowed from the bank, or raised by the issue of bonds. A debt-funded acquisition is known as a leveraged purchase, and debt will often be transferred into the balance sheet of the acquired company. The acquired company must then repay the debt. This is a technique often used by private equity firms. The debt-financing ratio can be as high as 80% in some cases. In such a case, the acquiring company only needs to raise 20% of the purchase price.
Alternative loan note
Cash offerings for public companies often include "loan memos" that allow shareholders to take some or all of their considerations on borrowed notes rather than cash. This is done primarily to make the offer more attractive in terms of taxation. Conversion of shares into cash is calculated as a release that triggers the payment of capital gains tax, whereas if the shares are converted into other securities, such as a loan note, the tax is extended.
Acquisitions, especially reverse takeovers, may be financed by all share agreements. The bidder does not pay the money, but issues a new share in himself to the shareholders of the acquired company. In a reversed takeover, the shareholders of the acquired company end up with a majority of shares in, and thus control, the company that makes the offer. The company has managerial rights.
All-money offer
If the acquisition of a company consists solely of an offer of a sum of money per share, (as opposed to all or any part of a payment in stock or a loan note) then this is an all money deal. It does not specify how the company purchases the source of cash - which can be derived from existing cash resources; Loan; or separate stock issues.
Mechanics
In the United Kingdom
Takeovers in the UK (meaning public company acquisitions only) are governed by the City Code of Takeovers and Mergers, also known as 'City Codes' or 'Takeover Codes'. Rules for takeover can be found in what is primarily known as 'The Blue Book'. This code is used to be a set of non-legal rules that are controlled by the city institution theoretically on a voluntary basis. However, since Code violations carry such damage to reputations and the possible exemption of municipal services run by those institutions, it is considered binding. In 2006, the Code of Conduct was incorporated into law as part of UK compliance with the European Takeover Directive (2004/25/EC).
Code requires that all shareholders in the company should be treated equally. It governs when and what information the company should and can not release publicly in relation to the offer, sets the schedule for certain aspects of the offer, and sets the minimum bid level after the previous purchase of the shares.
Especially:
- shareholders should make an offer when their shareholdings, including those acting together ("concert party"), reach 30% of the target;
- information relating to the offer may not be released except by an announcement regulated by the Code;
- the bidder should make an announcement if rumor or speculation has affected the stock price of the company;
- the bid level should be no less than any price paid by the bidder within twelve months prior to the announcement of the intention of the company to bid;
- if the stock is purchased during the bid period at a price higher than the bid price, the offer must be raised to that price;
The rules governing the Substantial Takeover of Shares, which are used to accompany the Code and which govern the announcement of certain shareholding levels, have now been removed, even though similar provisions are still in the Companies Act 1985.
Strategy
There are various reasons why the acquiring company can buy another company. Some takeover is opportunistic - the target company can easily get a price for one reason or another and the acquiring company may decide that in the long run, it will eventually make money by buying the target company. Berkshire Hathaway's large holding company has benefited from time to time by buying many companies opportunistically in this way.
Other takeovers are strategic because they are considered to have secondary effects beyond the simple effects of profitability of target firms added to the acquisition of corporate profitability. For example, an acquiring company may decide to buy a profitable company and have a good distribution capability in a new area that a company can use for its own product. Target companies may be attractive because it allows the acquiring company to enter new markets without having to take the risk, time and cost to start a new division. The acquiring company may decide to take over the competitor not only because the competitor is profitable, but to eliminate the competition in its field and make it easier, in the long run, to raise the price. Also a takeover may satisfy the belief that a combined company can be more profitable than both companies will separately due to excessive function reduction.
Agency issues
Takeovers can also benefit from key issues-agents associated with top executive compensation. For example, it is quite easy for a top executive to reduce the company's stock price - because of information asymmetry. Executives can speed up expected cost calculations, delay expected earnings calculations, engage in off-balance-sheet transactions to make corporate profitability appear temporarily worse, or simply promote and report very conservative estimates (ie pessimistic) of future earnings. The seemingly disadvantageous earnings news will tend to (at least temporarily) reduce share prices. (This is again due to information asymmetry as it is more common for top executives to do everything they can to dress their earnings forecast). There is usually very little legal risk to be 'too conservative' in the accounting and income calculations of a person.
A fall in stock prices makes the company an easier takeover target. When a company is bought out (or taken privately) - at a much lower price - the takeover takes advantage of the former executive's actions to quietly reduce the stock price. It may represent tens of billions of dollars (in question) transferred from previous shareholders to takeover artist. The former top executive was later awarded with a golden handshake to lead a fire sale that could sometimes reach hundreds of millions of dollars for one or two years of work. (This remains an excellent bargain for expropriators, who will tend to benefit from developing a reputation as a very generous person to part with top executives). This is just one example of some of the principal-agent incentive issues involved with the takeover.
A similar problem occurs when public or nonprofit owned assets are privatized. Top executives often reap tremendous monetary benefits when government-owned or non-profit entities are sold into private hands. Just as in the example above, they can facilitate this process by making the entity seem to be in a financial crisis. This perception can reduce the selling price (against the buyer's profit) and make the nonprofit and the government more likely to sell. It can also contribute to the public perception that private entities are more efficiently run, reinforcing the political will to sell public assets.
Pros and cons
While the pros and cons of expropriation vary from case to case, there are some recurring ones that need to be mentioned.
Advantages:
- Increased sales/revenue (eg Gillette & Gamble takeover)
- Venture into new business and market
- Profitability of target company
- Increase market share
- Competition is decreasing (from the perspective of the acquiring company)
- Reduced industry capacity overload
- Enlarge the brand portfolio (eg Takeover Body Shop from L'Orà © Å © al)
- Increased economies of scale
- Increased efficiency as a result of corporate synergy/redundancy (work with overlapping responsibilities can be eliminated, reduce operating costs)
- Expand the strategic distribution network
Cons:
- Goodwill, often overpaid for acquisitions
- Cultural clashes in two companies cause employees to be less efficient or discouraged
- Reduce competition and choice for consumers in the oligopoly market (Bad for consumers, although this is good for companies involved in takeovers)
- Possible termination of employment
- Cultural/conflict integration with new management
- The hidden obligation of the target entity
- Monetary costs for companies
- Lack of motivation for employees in the purchased company
- The dominance of a subsidiary by the parent company, which may result in the company's piercing
Takeovers also tend to replace debt for equities. In a sense, the government's tax policy to allow the reduction of interest costs but not dividends, basically provides substantial subsidies for the takeover. This can punish more conservative or wise management that does not allow their companies to leverage themselves into high-risk positions. Higher leverage will result in high profits if things go well but may cause catastrophic failure if not. This can create great negative externalities for governments, employees, suppliers, and other stakeholders.
Genesis
Company takeovers are common in the United States, Canada, Britain, France and Spain. Sometimes it only happens in Italy because bigger shareholders (usually family control) often have special board privileges designed to keep them in control. They are not often the case in Germany because of the dual board structure, or in Japan because the company has a familiar set of ownership known as keiretsu, or in the People's Republic of China because the majority owned by the state owns most public companies.
Tactics against enemy takeover
There are several tactics or techniques that can be used to block a hostile takeover.
See also
- Cost of separation
- Concentration of media ownership
- Premium control
- Mergers and acquisitions
- Revlon, Inc. v. MacAndrews & amp; Forbes Holdings, Inc.
- Trailer bids
- Squeeze
- Transformational acquisitions
References
External links
- Jarrell, Gregg A. (2002). "Leveraged Takeovers and Purchases". In David R. Henderson (ed.). Economic Concise Encyclopedia (1st ed.). Library of Economy and Freedom. CS1 maint: Additional text: editor list (link) OCLCÃ, 317650570, 50016270, 163149563
- Acquisition Financing
Source of the article : Wikipedia
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