Takeover
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In business, a takeover is the purchase of one
company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture of both, with a specific objective. Company members share a common p ...
(the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a
public company A public company is a company whose ownership is organized via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. A public (publicly traded) company can be listed on a stock exchange (l ...
whose shares are listed on a
stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for th ...
, in contrast to the acquisition of a
private company A privately held company (or simply a private company) is a company whose shares and related rights or obligations are not offered for public subscription or publicly negotiated in the respective listed markets, but rather the company's stock is ...
. Management of the target company may or may not agree with a proposed takeover, and this has resulted in the following takeover classifications: friendly, hostile, reverse or back-flip. Financing a takeover often involves loans or bond issues which may include
junk bond In finance, a high-yield bond (non-investment-grade bond, speculative-grade bond, or junk bond) is a bond that is rated below investment grade by credit rating agencies. These bonds have a higher risk of default or other adverse credit events ...
s as well as a simple cash offers. It can also include shares in the new company.


Types


Friendly

A ''friendly takeover'' is an acquisition which is approved by the management of the target company. Before a bidder makes an
offer Offer or offers may refer to: People * Ofer Eshed or Offer Eshed (1942-2007), Israeli basketball player * Offer Nissim (born 1964), Israeli house DJ * Avner Offer, economic historian * Dick Offer, English rower * Jack Offer, English rower * Steve ...
for another company, it usually first informs the company's
board of directors A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organiz ...
. In an ideal world, if the board feels that accepting the offer serves the
shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal own ...
s better than rejecting it, it recommends the offer be accepted by the shareholders. In a private company, because the shareholders and the board are usually the same people or closely connected with one another, private acquisitions are usually friendly. If the shareholders agree to sell the company, then the board is usually of the same mind or sufficiently under the orders of the equity shareholders to cooperate with the bidder. This point is not relevant to the UK concept of takeovers, which always involve the acquisition of a public company.


Hostile

A ''hostile takeover'' allows a bidder to take over a target company whose
management Management (or managing) is the administration of an organization, whether it is a business, a nonprofit organization, or a government body. It is the art and science of managing resources of the business. Management includes the activities o ...
is unwilling to agree to a merger or takeover. The party who initiates a hostile takeover bid approaches the shareholders directly, as opposed to seeking approval from officers or directors of the company. A takeover is considered ''hostile'' if the target company's board rejects the offer, and if the bidder continues to pursue it, or the bidder makes the offer directly after having announced its firm intention to make an offer. Development of the hostile takeover is attributed to
Louis Wolfson Louis Elwood Wolfson (January 28, 1912 – December 30, 2007) was an American financier, a convicted felon, and one of the first modern corporate raiders, labeled by ''Time'' as such in a 1956 article.tender offer In corporate finance, a tender offer is a type of public takeover bid. The tender offer is a public, open offer or invitation (usually announced in a newspaper advertisement) by a prospective acquirer to all stockholders of a publicly traded corpo ...
can be made where the acquiring company makes a public offer at a fixed price above the current
market price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the ...
. An acquiring company can also engage in a
proxy fight A proxy fight, proxy contest or proxy battle (sometimes even called a proxy war) is an unfriendly contest for the control over an organization. The event usually occurs when a corporation's stockholders develop opposition to some aspect of the corp ...
, whereby it tries to persuade enough shareholders, usually a simple majority, to replace the management with a new one which will approve the takeover. Another method involves quietly purchasing enough stock on the open market, known as a ''creeping tender offer'' or ''dawn raid'', to effect a change in management. In all of these ways, management resists the acquisition, but it is carried out anyway. In the United States, a common defense tactic against hostile takeovers is to use section 16 of the
Clayton Act The Clayton Antitrust Act of 1914 (, codified at , ), is a part of United States antitrust law with the goal of adding further substance to the U.S. antitrust law regime; the Clayton Act seeks to prevent anticompetitive practices in their incipie ...
to seek an injunction, arguing that section 7 of the act, which prohibits acquisitions where the effect may be substantially to lessen competition or to tend to create a monopoly, would be violated if the offeror acquired the target's stock. The main consequence of a bid being considered hostile is practical rather than legal. If the board of the target cooperates, the bidder can conduct extensive
due diligence Due diligence is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care. It can be a l ...
into the affairs of the target company, providing the bidder with a comprehensive analysis of the target company's finances. In contrast, a hostile bidder will only have more limited, publicly available information about the target company available, rendering the bidder vulnerable to hidden risks regarding the target company's finances. Since takeovers often require loans provided by
bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...
s in order to service the offer, banks are often less willing to back a hostile bidder because of the relative lack of target information which is available to them. Under
Delaware Delaware ( ) is a state in the Mid-Atlantic region of the United States, bordering Maryland to its south and west; Pennsylvania to its north; and New Jersey and the Atlantic Ocean to its east. The state takes its name from the adjacent Del ...
law, boards must engage in defensive actions that are proportional to the hostile bidder's threat to the target company. A well-known example of an extremely hostile takeover was Oracle's bid to acquire
PeopleSoft PeopleSoft, Inc. is a company that provides human resource management systems (HRMS), Financial Management Solutions (FMS), supply chain management (SCM), customer relationship management (CRM), and enterprise performance management (EPM) software ...
. As of 2018, about 1,788 hostile takeovers with a total value of US$28.86 billion had been announced.


Reverse

A ''reverse takeover'' is a type of takeover where a public company acquires a private company. This is usually done at the instigation of the private company, the purpose being for the private company to effectively
float Float may refer to: Arts and entertainment Music Albums * ''Float'' (Aesop Rock album), 2000 * ''Float'' (Flogging Molly album), 2008 * ''Float'' (Styles P album), 2013 Songs * "Float" (Tim and the Glory Boys song), 2022 * "Float", by Bush ...
itself while avoiding some of the expense and time involved in a conventional
IPO An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment ...
. However, in the UK under AIM rules, a reverse takeover is an acquisition or acquisitions in a twelve-month period which for an AIM company would: * exceed 100% in any of the class tests; or * result in a fundamental change in its business, board or voting control; or * in the case of an investing company, depart substantially from the investing strategy stated in its admission document or, where no admission document was produced on admission, depart substantially from the investing strategy stated in its pre-admission announcement or, depart substantially from the investing strategy. An individual or organization, sometimes known as a
corporate raider A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...
, can purchase a large fraction of the company's stock and, in doing so, get enough votes to replace the board of directors and the CEO. With a new agreeable management team, the stock is, potentially, a much more attractive investment, which might result in a price rise and a profit for the corporate raider and the other shareholders. A well-known example of a reverse takeover in the United Kingdom was
Darwen Group The Darwen Group was a bus manufacturer located in Blackburn, Lancashire, England. The company originated from the purchase of East Lancashire Coachbuilders who went into administration in August 2007. After a series of developments, in June 20 ...
's 2008 takeover of
Optare plc Switch Mobility (originally called Optare) is an English bus manufacturer based in Sherburn-in-Elmet, North Yorkshire. It is a subsidiary of Indian company Ashok Leyland. The company would be responsible for the EV operations of the group with ...
. This was also an example of a back-flip takeover (see below) as Darwen was rebranded to the more well-known Optare name.


Backflip

A ''backflip takeover'' is any sort of takeover in which the acquiring company turns itself into a
subsidiary A subsidiary, subsidiary company or daughter company is a company owned or controlled by another company, which is called the parent company or holding company. Two or more subsidiaries that either belong to the same parent company or having a s ...
of the purchased company. This type of takeover can occur when a larger but less well-known company purchases a struggling company with a very well-known brand. Examples include: * The
Texas Air Corporation Texas Air Corporation, also known as Texas Air, was an airline holding company, incorporated in June 1980 by airline investor Frank Lorenzo to hold and invest in airlines. The company had its headquarters in the America Tower in the American Ge ...
takeover of Continental Airlines but taking the Continental name as it was better known. * The SBC takeover of the ailing
AT&T AT&T Inc. is an American multinational telecommunications holding company headquartered at Whitacre Tower in Downtown Dallas, Texas. It is the world's largest telecommunications company by revenue and the third largest provider of mobile te ...
and subsequent rename to AT&T. * Westinghouse's 1995 purchase of CBS and 1997 renaming to
CBS Corporation The second incarnation of CBS Corporation (the first being a short-lived rename of the Westinghouse Electric Corporation) was an American multinational media conglomerate with interests primarily in commercial broadcasting, publishing, and t ...
, with Westinghouse becoming a brand name owned by the company. *
NationsBank NationsBank was one of the largest banking corporations in the United States, based in Charlotte, North Carolina. The company named NationsBank was formed through the merger of several other banks in 1991, and prior to that had been through mul ...
's takeover of the
Bank of America The Bank of America Corporation (often abbreviated BofA or BoA) is an American multinational investment bank and financial services holding company headquartered at the Bank of America Corporate Center in Charlotte, North Carolina. The bank ...
, but adopting Bank of America's name. * Norwest purchased
Wells Fargo Wells Fargo & Company is an American multinational financial services company with corporate headquarters in San Francisco, California; operational headquarters in Manhattan; and managerial offices throughout the United States and intern ...
but kept the latter due to its name recognition and historical legacy in the American West. * Interceptor Entertainment's acquisition of 3D Realms, but kept the name 3D Realms. * Nordic Games buying
THQ THQ Inc. was an American video game company based in Agoura Hills, California. It was founded in April 1990 by Jack Friedman, originally in Calabasas, and became a public company the following year through a reverse merger takeover. Initi ...
assets and trademark and renaming itself to
THQ Nordic THQ Nordic GmbH (formerly Nordic Games GmbH) is an Austrian video game publisher based in Vienna. Formed in 2011, it is a publishing subsidiary of Embracer Group. Originally named Nordic Games, as was the parent company, both companies were re ...
. * Infogrames Entertainment, SA becoming Atari SA. * The Avago Technologies takeover of
Broadcom Corporation Broadcom Corporation is an American fabless semiconductor company that makes products for the wireless and broadband communication industry. It was acquired by Avago Technologies in 2016 and operates as a wholly owned subsidiary of the merged ...
and subsequent rename to
Broadcom Inc. Broadcom Inc. is an American designer, developer, manufacturer and global supplier of a wide range of semiconductor and infrastructure software products. Broadcom's product offerings serve the data center, networking, software, broadband, wirel ...
* Overkill Software's takeover of Starbreeze


Financing


Funding

Often a company acquiring another pays a specified amount for it. This money can be raised in a number of ways. Although the company may have sufficient funds available in its account, remitting payment entirely from the acquiring company's cash on hand is unusual. More often, it will be borrowed from a
bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...
, or raised by an issue of bonds. Acquisitions financed through debt are known as
leveraged buyout A leveraged buyout (LBO) is one company's acquisition of another company using a significant amount of borrowed money (leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loan ...
s, and the debt will often be moved down onto the
balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
of the acquired company. The acquired company then has to pay back the debt. This is a technique often used by private equity companies. The debt ratio of financing can go as high as 80% in some cases. In such a case, the acquiring company would only need to raise 20% of the purchase price.


Loan note alternatives

Cash offers for
public companies A public company is a company whose ownership is organized via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. A public (publicly traded) company can be listed on a stock exchange (list ...
often include a "loan note alternative" that allows shareholders to take a part or all of their consideration in
loan note A loan note is a type of financial instrument; it is a contract for a loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e ...
s rather than cash. This is done primarily to make the offer more attractive in terms of
taxation A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...
. A conversion of shares into cash is counted as a disposal that triggers a payment of
capital gains tax A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, Bond (finance), bonds, precious metals, real estate, and property. Not all count ...
, whereas if the shares are converted into other
securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
, such as loan notes, the tax is rolled over.


All-share deals

A takeover, particularly a
reverse takeover A reverse takeover (RTO), reverse merger, or reverse IPO is the acquisition of a public company by a private company so that the private company can bypass the lengthy and complex process of going public. Sometimes, conversely, the public compan ...
, may be financed by an all-share deal. The bidder does not pay money, but instead issues new shares in itself to the shareholders of the company being acquired. In a reverse takeover the shareholders of the company being acquired end up with a majority of the shares in, and so control of, the company making the bid. The company has managerial rights.


All-cash deals

If a takeover of a company consists of simply an offer of an amount of money per share, (as opposed to all or part of the payment being in shares or loan notes) then this is an all-cash deal. This does not define how the purchasing company sources the cash- that can be from existing cash resources; loans; or a separate issue of shares.


Mechanics


In the United Kingdom

Takeovers in the UK (meaning acquisitions of public companies only) are governed by the
City Code on Takeovers and Mergers The Takeover Code, or more formally The City Code on Takeovers and Mergers, is a binding set of rules that apply to listed companies in the United Kingdom, such as those trading on the London Stock Exchange. Many of its provisions are mirrored in t ...
, also known as the 'City Code' or 'Takeover Code'. The rules for a takeover can be found in what is primarily known as 'The Blue Book'. The Code used to be a non-statutory set of rules that was controlled by city institutions on a theoretically voluntary basis. However, as a breach of the Code brought such reputational damage and the possibility of exclusion from city services run by those institutions, it was regarded as binding. In 2006, the Code was put onto a statutory footing as part of the UK's compliance with the European Takeover Directive (2004/25/EC). The Code requires that all shareholders in a company should be treated equally. It regulates when and what information companies must and cannot release publicly in relation to the bid, sets timetables for certain aspects of the bid, and sets minimum bid levels following a previous purchase of shares. In particular: * a shareholder must make an offer when its shareholding, including that of parties acting in concert (a " concert party"), reaches 30% of the target; * information relating to the bid must not be released except by announcements regulated by the Code; * the bidder must make an announcement if rumour or speculation have affected a company's share price; * the level of the offer must not be less than any price paid by the bidder in the twelve months before the announcement of a firm intention to make an offer; * if shares are bought during the offer period at a price higher than the offer price, the offer must be increased to that price; The Rules Governing the Substantial Acquisition of Shares, which used to accompany the Code and which regulated the announcement of certain levels of shareholdings, have now been abolished, though similar provisions still exist in the
Companies Act 1985 The Companies Act 1985 (c. 6) is an Act of the Parliament of the United Kingdom of Great Britain and Northern Ireland, enacted in 1985, which enabled companies to be formed by registration, and set out the responsibilities of companies, their ...
.


Strategies

There are a variety of reasons why an acquiring company may wish to purchase another company. Some takeovers are ''opportunistic'' – the target company may simply be very reasonably priced for one reason or another and the acquiring company may decide that in the long run, it will end up making money by purchasing the target company. The large
holding company A holding company is a company whose primary business is holding a controlling interest in the securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies ...
Berkshire Hathaway Berkshire Hathaway Inc. () is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States. Its main business and source of capital is insurance, from which it invests the float (the retained premiu ...
has profited well over time by purchasing many companies opportunistically in this manner. Other takeovers are ''strategic'' in that they are thought to have secondary effects beyond the simple effect of the profitability of the target company being added to the acquiring company's profitability. For example, an acquiring company may decide to purchase a company that is profitable and has good
distribution Distribution may refer to: Mathematics *Distribution (mathematics), generalized functions used to formulate solutions of partial differential equations * Probability distribution, the probability of a particular value or value range of a vari ...
capabilities in new areas which the acquiring company can use for its own products as well. A target company might be attractive because it allows the acquiring company to enter a new market without having to take on the risk, time and expense of starting a new division. An acquiring company could decide to take over a competitor not only because the competitor is profitable, but in order to eliminate competition in its field and make it easier, in the long term, to raise prices. Also a takeover could fulfill the belief that the combined company can be more profitable than the two companies would be separately due to a reduction of redundant functions.


Agency problems

Takeovers may also benefit from
principal–agent problem The principal–agent problem refers to the conflict in interests and priorities that arises when one person or entity (the "agent") takes actions on behalf of another person or entity (the " principal"). The problem worsens when there is a gre ...
s associated with top executive compensation. For example, it is fairly easy for a top executive to reduce the price of his/her company's stock – due to
information asymmetry In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. Information asymmetry creates an imbalance of power in transactions, which ca ...
. The executive can accelerate accounting of expected expenses, delay accounting of expected revenue, engage in
off-balance-sheet Off balance sheet (OBS), or incognito leverage, usually means an asset or debt or financing activity not on the company's balance sheet. Total return swaps are an example of an off-balance-sheet item. Some companies may have significant amounts o ...
transactions to make the company's profitability appear temporarily poorer, or simply promote and report severely conservative (i.e. pessimistic) estimates of future earnings. Such seemingly adverse earnings news will be likely to (at least temporarily) reduce the company's stock price. (This is again due to information asymmetries since it is more common for top executives to do everything they can to window dress their company's earnings forecasts.) There are typically very few legal risks to being 'too conservative' in one's accounting and earnings estimates. A reduced share price makes a company an easier takeover target. When the company gets bought out (or taken private) – at a dramatically lower price – the takeover artist gains a windfall from the former top executive's actions to surreptitiously reduce the company's stock price. This can represent tens of billions of dollars (questionably) transferred from previous shareholders to the takeover artist. The former top executive is then rewarded with a golden handshake for presiding over the
fire sale A fire sale is the sale of goods at extremely discounted prices. The term originated in reference to the sale of goods at a heavy discount due to fire damage. It may or may not be defined as a closeout, the final sale of goods to zero inventor ...
that can sometimes be in the hundreds of millions of dollars for one or two years of work. (This is nevertheless an excellent bargain for the takeover artist, who will tend to benefit from developing a reputation of being very generous to parting top executives.) This is just one example of some of the principal–agent /
perverse incentive A perverse incentive is an incentive that has an unintended and undesirable result that is contrary to the intentions of its designers. The cobra effect is the most direct kind of perverse incentive, typically because the incentive unintentional ...
issues involved with takeovers. Similar issues occur when a publicly held asset or non-profit organization undergoes
privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
. Top executives often reap tremendous monetary benefits when a government owned or non-profit entity is sold to private hands. Just as in the example above, they can facilitate this process by making the entity appear to be in financial crisis. This perception can reduce the sale price (to the profit of the purchaser) and make non-profits and governments more likely to sell. It can also contribute to a public perception that private entities are more efficiently run, reinforcing the political will to sell off public assets.


Pros and cons

While pros and cons of a takeover differ from case to case, there are a few recurring ones worth mentioning. Pros: * Increase in sales/revenues * Venture into new businesses and markets * Profitability of target company * Increase market share * Decreased competition (from the perspective of the acquiring company) * Reduction of overcapacity in the industry * Enlarge brand portfolio * Increase in
economies of scale In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time. A decrease in cost per unit of output enables ...
* Increased efficiency as a result of corporate synergies/redundancies (jobs with overlapping responsibilities can be eliminated, decreasing operating costs) * Expand strategic distribution network Cons: * Goodwill, often paid in excess for the acquisition * Culture clashes within the two companies causes employees to be less-efficient or despondent * Reduced competition and choice for consumers in
oligopoly An oligopoly (from Greek ὀλίγος, ''oligos'' "few" and πωλεῖν, ''polein'' "to sell") is a market structure in which a market or industry is dominated by a small number of large sellers or producers. Oligopolies often result from ...
markets (bad for consumers, although this is good for the companies involved in the takeover) * Likelihood of job cuts * Cultural integration or conflict with new management * Hidden liabilities of target entity * The monetary cost to the company * Lack of motivation for employees in the company being bought * Domination of a subsidiary by the parent company, which may result in
piercing the corporate veil Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders. Usually a corporation is treated as a separate legal person, which is so ...
Takeovers also tend to substitute debt for equity. In a sense, any government tax policy of allowing for deduction of interest expenses but not of
dividend A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-in ...
s, has essentially provided a substantial subsidy to takeovers. It can punish more-conservative or prudent management that does not allow their companies to
leverage Leverage or leveraged may refer to: *Leverage (mechanics), mechanical advantage achieved by using a lever * ''Leverage'' (album), a 2012 album by Lyriel *Leverage (dance), a type of dance connection *Leverage (finance), using given resources to ...
themselves into a high-risk position. High leverage will lead to high profits if circumstances go well but can lead to catastrophic failure if they do not. This can create substantial
negative externalities In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either co ...
for governments, employees, suppliers and other stakeholders.


Occurrence

Corporate takeovers occur frequently in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
,
Canada Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
,
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
,
France France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of Overseas France, overseas regions and territories in the Americas and the Atlantic Ocean, Atlantic, Pacific Ocean, Pac ...
and
Spain , image_flag = Bandera de España.svg , image_coat = Escudo de España (mazonado).svg , national_motto = ''Plus ultra'' (Latin)(English: "Further Beyond") , national_anthem = (English: "Royal March") , i ...
. They happen only occasionally in
Italy Italy ( it, Italia ), officially the Italian Republic, ) or the Republic of Italy, is a country in Southern Europe. It is located in the middle of the Mediterranean Sea, and its territory largely coincides with the homonymous geographical re ...
because larger shareholders (typically controlling families) often have special board voting privileges designed to keep them in control. They do not happen often in
Germany Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwe ...
because of the
dual board A Dual Board or Two Tier system is a corporate structure system that consists of two bodies i.e. the Council of Delegates to govern the Board of Directors and the Board of Directors to manage a corporation. The roles and relationships between the ...
structure, nor in
Japan Japan ( ja, 日本, or , and formally , ''Nihonkoku'') is an island country in East Asia. It is situated in the northwest Pacific Ocean, and is bordered on the west by the Sea of Japan, while extending from the Sea of Okhotsk in the north ...
because companies have interlocking sets of ownerships known as
keiretsu A is a set of companies with interlocking business relationships and shareholdings. In the legal sense, it is a type of informal business group that are loosely organized alliances within the social world of Japan's business community. The ''ke ...
, nor in the
People's Republic of China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's most populous country, with a population exceeding 1.4 billion, slightly ahead of India. China spans the equivalent of five time zones and ...
because many publicly listed companies are
state owned State ownership, also called government ownership and public ownership, is the ownership of an Industry (economics), industry, asset, or Business, enterprise by the State (polity), state or a public body representing a community, as opposed to a ...
.


Tactics against hostile takeover

There are quite a few tactics or techniques which can be used to deter a hostile takeover. *
Bankmail In a bankmail agreement, a company engaged in a takeover bid makes an agreement with a bank that the bank would only finance their possible bid, and not that of a rival attempt to acquire the takeover target. See also * Mergers and acquisitions ...
*
Crown jewel defense In business, when a company is threatened with takeover, the crown jewel defense is a strategy in which the target company sells off its most attractive assets to a friendly third party or spins off the valuable assets in a separate entity. Conseq ...
* Golden parachute *
Greenmail Greenmail or greenmailing is the action of purchasing enough shares in a firm to challenge a firm's leadership with the threat of a hostile takeover to force the target company to buy the purchased shares back at a premium in order to prevent the ...
* Killer bees *
Leveraged recapitalization In corporate finance, a leveraged recapitalization is a change of the company's capital structure, usually substitution of debt for equity. Overview Such recapitalizations are executed via issuing bonds to raise money and using the proceeds to ...
*
Lobster trap A lobster trap or lobster pot is a portable trap that traps lobsters or crayfish and is used in lobster fishing. In Scotland (chiefly in the north), the word creel is used to refer to a device used to catch lobsters and other crustaceans. A lo ...
*
Lock-up provision {{Unreferenced, date=November 2008 Lock-up provision is a term used in corporate finance which refers to the option granted by a seller to a buyer to purchase a target company’s stock as a prelude to a takeover. The major or controlling sharehol ...
*
Nancy Reagan defense The Nancy Reagan defense is a tactic in corporate finance used to counter a takeover or merger bidder who has made a formal bid to shareholders to buy their shares. When the board of directors of the target company meets to consider the bid, they ...
*
Non-voting stock Non-voting stock is the stock that provides the shareholder very little or no vote on corporate matters, such as election of the board of directors or mergers. This type of share is usually implemented for individuals who want to invest in the com ...
*
Pac-Man defense The Pac-Man defense is a defensive business strategy used to stave off a hostile takeover, in which a company that is threatened with a hostile takeover "turns the tables" by attempting to acquire its would-be buyer. The name refers to Pac-Man, a v ...
* Poison pill (shareholder rights plan) **
Flip-in In business, the flip-in is one of the five main types of poison pill defenses against corporate takeovers. The flip-in is a provision in the target company's corporate charter or bylaws. The provision gives current shareholders of a targeted co ...
**
Flip-over A flip-over is one of five types of poison pills in which current shareholders of a targeted firm will have the option to purchase discounted stock after the potential takeover. Introduced in late 1984 and adopted by many firms, the strategy gave ...
** Jonestown defense **
Pension parachute A pension parachute is a form of poison pill that prevents the raiding firm of a hostile takeover from utilizing the pension assets to finance the acquisition. When the target firm is threatened by an acquirer, the pension plan assets are only av ...
** People pill **
Voting plan A voting plan or voting rights plan is one of five main types of poison pills that a target firm can issue against hostile takeover attempts. These plans are implemented when a company charters preferred stock with superior voting rights to common ...
s * Safe harbor *
Scorched-earth defense The scorched-earth defense is a form of risk arbitrage and anti-takeover strategy. When a target firm implements this provision, it will make an effort to make itself unattractive to the hostile bidder. For example, a company may agree to liquid ...
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Staggered board of directors Staggered elections are elections where only some of the places in an elected body are up for election at the same time. For example, United States senators have a six-year term, but they are not all elected at the same time. Rather, elections a ...
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Standstill agreement The term standstill agreement refers to various forms of agreement which businesses may enter into in order to delay action which might otherwise take place. A standstill agreement may be used as a form of defence to a hostile takeover, when a t ...
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Targeted repurchase A targeted repurchase is a technique used to thwart a hostile takeover in which the target firm purchases back its own stock from an unfriendly bidder, usually at a price well above market value. Empirical evidence Mikkelson and Ruback analyzed ...
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Top-ups In business, a top-up is a variation of a company's stock repurchase program for common shareholders. Although this buyback reduces voting interest of its shareholder, the shareholder may subsequently increase its holdings, called a top-up. For ...
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Treasury stock A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market ("open market" including insiders' holdings). Stock repurchases are used as a tax efficie ...
* Gray knight * White knight *
Whitemail Whitemail, coined as an opposite to blackmail, has several meanings. Economics In economics, whitemail is an anti-takeover arrangement in which the target company will sell significantly discounted stock to a friendly third party. In return ...


See also

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Breakup fee A breakup fee (sometimes called a termination fee) is a penalty set in takeover agreements, to be paid if the target backs out of a deal (usually because it has decided instead to accept a more attractive offer). The breakup fee is ostensibly to com ...
* Concentration of media ownership *
Control premium A control premium is an amount that a buyer is sometimes willing to pay over the current market price of a publicly traded company in order to acquire a controlling share in that company. If the market perceives that a public company's profit and ...
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List of largest mergers and acquisitions The following tables list the largest mergers and acquisitions by decade of transaction. Transaction values are given in the US dollar value for the year of the merger, adjusted for inflation. , the largest ever acquisition was the 1999 takeover ...
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Mergers and acquisitions Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...
* Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. *
Scrip bid In Australia, a scrip bid is a takeover offer where shares are offered partly or wholly in place of cash. This means that, if a take over bid is accepted, shareholders in the target company will receive shares in the new merged entity. This has a ...
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Squeeze out A squeeze-out or squeezeout, sometimes synonymous with '' freeze-out'', is the compulsory sale of the shares of minority shareholders of a joint-stock company for which they receive a fair cash compensation. This technique allows one or more shar ...
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Successor company A successor company takes the business (products and services) of the previous companies with the goal to maintain the continuity of the business. To this end the employees, board of directors, location, equipment and even product name may remain th ...
* Transformational acquisition


References


Works cited

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External links

* {{Authority control Mergers and acquisitions Corporate finance