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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 pu ...
(the ''target'') by another (the ''acquirer'', or ''bidder''). In the
UK
UK
, the term refers to the acquisition of a
public company A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a company whose ownership is organized via shares of share capital, stock which are intended to be freely traded on a stock ...
whose shares are listed on a
stock exchange A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorporated community in Green Township, Morgan County, Indiana, Green To ...
, in contrast to the
acquisition Acquisition may refer to: * Takeover, the purchase of one company by another * Mergers and acquisitions, transactions in which the ownership of companies or their operating units are transferred or consolidated with other entities * Procurement, fi ...
of a
private company A privately held company or private company is a company which does not offer or trade its company stock (share (finance), shares) to the general public on the stock market exchanges, but rather the company's stock is offered, owned and traded or ...
. 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 Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money availab ...
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 for another company, it usually first informs the company's
board of directors A board of directors is a group of people who jointly supervise the activities of an organization An organization, or organisation (Commonwealth English The use of the English language English is a West Germanic languages, W ...
. 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 law, trust or partnership) that is registered by the corporation as the ...
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 An organization, or organisation (Commonwealth English The use of the English language English is a West Germanic languages, West Germanic language first spok ...

management
is unwilling to agree to a
merger In corporate finance, mergers and acquisitions (M&A) are transactions in which the ownership of Company, companies, other business organizations, or their operating units are transferred or Consolidation (business), consolidated with other entit ...
or takeover. 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 tender is attributed to
Louis Wolfson Louis Elwood Wolfson (January 28, 1912 – December 30, 2007) was an American financier and one of the first modern corporate raiders, labeled by ''Time (magazine), 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 shareholders, stockholders of a public c ...
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 Quantity is a property that can exist as a multitude or magnitude, which illustrate discontinuity and continuity. Quantities can be compared in terms of "more", "less", or "equal", or b ...
. 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'', 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 , ), was a part of United States antitrust law In the United States, antitrust law is a collection of federal and state government laws that regulate the conduct and organization of business corpor ...
to seek an injunction, arguing that section 7 of the act 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 Standard may re ...
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 Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), stat ...

bank
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 (United States), 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 i ...
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. was a company that provided human resource management systems (HRMS), Financial Management Solutions (FMS), supply chain management 400px, In an efficient supply chain agreements are aligned In commerce Commerce is the e ...
. As of 2018, about 1,788 hostile takeovers with a total value of US$28.86B have 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", by Bush from '' Golden State'', 2001 * "Float," by Eden ...
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 A public offering is the offering of securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument Finance is the ...
. However, in the
UK
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 rec ...
, 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 A chief executive officer (CEO), chief administrator officer, or just chief executive (CE), is one of a number of Corporate Executive, corporate executives in charge of managing an organization especially an independent Legal person, legal entity ...
. 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 Profit may refer to: Business and law * Profit (accounting) Profit, in accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic en ...
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 200 ...
's 2008 takeover of
Optare plc Optare () is an English bus manufacturer based in Sherburn-in-Elmet, North Yorkshire North Yorkshire is the largest non-metropolitan county and lieutenancy area in England England is a Countries of the United Kingdom, country that ...
. 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 (law), company owned or controlled by another company, which is called the parent company or holding company. Two subsidiaries that belong to the same parent company are called sis ...
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 was an airline An airline is a company that provides air transport services for traveling passengers and freight. Airlines utilize aircraft to supply these services and may form partnerships or Airline alliance, alliances with other ...
takeover of
Continental Airlines Continental Airlines was a Major airlines of the United States, major American airline founded in 1934 and eventually headquartered in Houston, Texas. It had ownership interests and brand partnerships with several carriers. Continental starte ...
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 Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multiple countries * Multinational state, a s ...

AT&T
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 The Westinghouse Electric Corporation was an American manufacturing company founded in 1886 by George Westinghouse G ...
, with
Westinghouse Westinghouse may refer to: Businesses Current companies *Westinghouse Licensing, the brand management division of ViacomCBS, and licensees: **Westinghouse Electric Company, providing nuclear power related services **Westinghouse Electronics, wh ...
becoming a brand name owned by the company. *
NationsBank NationsBank was one of the largest banking corporations in the United States The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily located in No ...
's takeover of the
Bank of America The Bank of America Corporation (simply referred to as Bank of America, often abbreviated as BofA or BoA) is an American multinational investment bank Investment is the dedication of an asset to attain an increase in value over a period o ...

Bank of America
, 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 San Francisco (/Help:IPA/English, ˌsæn fɹənˈsɪskoʊ/; Spanish language, Spanish for "Fra ...

Wells Fargo
but kept the latter due to its name recognition and historical legacy in the American West. * Interceptor Entertainment's acquisition of
3D Realms 3D Realms Entertainment ApS is a video game publisher based in Aalborg, Denmark. Scott Miller (entrepreneur), Scott Miller founded the company in his parents' home in Garland, Texas, United States, in 1987 as Apogee Software Productions, to re ...

3D Realms
, but kept the name 3D Realms. * Nordic Games buying
THQ THQ Inc. was an American video game industry, video game company based in Agoura Hills, California. It was founded in April 1990 by Jack Friedman, originally in Calabasas, California, Calabasas, and became a public company the following year t ...
assets and trademark and renaming itself to
THQ Nordic THQ Nordic GmbH (formerly Nordic Games GmbH) is an Austrian video game publisher A video game publisher is a company that publishes video game A video game is an electronic game that involves interaction with a user interface or input ...
. * Infogrames Entertainment, SA becoming
Atari SA Atari SA (formerly Infogrames Entertainment SA) is a French video game 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 ...
. * 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..


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 Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), stat ...

bank
, 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 (finance), leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as coll ...
s, and the debt will often be moved down onto the
balance sheet In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such a ...

balance sheet
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, publicly traded company, publicly held company, publicly listed company, or public limited company is a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whet ...
often include a "loan note alternative" that allows shareholders to take a part or all of their
consideration Consideration is a concept of English law, English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions. The court in ''Currie v Mis ...
in loan notes 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 entity In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act accord ...
. 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 a tax on the profit realized on the sale of a non-inventory asset In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (t ...
, whereas if the shares are converted into other
securities A security is a tradable financial asset A financial asset is a non-physical asset In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication o ...
, 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 Initial public offering, IPO is the acquisition of a private company by an existing public company so that the private company can bypass the lengthy and complex process of going public. Someti ...
, may be financed by an all share deal. The bidder does not pay money, but instead issues new
shares In financial markets A financial market is a market Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an island shared by Finland and Sweden Art, entertain ...
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 City Code on Takeovers and Mergers is a binding set of rules that apply to listed companies in the United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixe ...
, 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 di ...
.


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 () is an American multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multiple countries * Multinational ...

Berkshire Hathaway
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
distributionDistribution may refer to: Mathematics *Distribution (mathematics) Distributions, also known as Schwartz distributions or generalized functions, are objects that generalize the classical notion of functions in mathematical analysis. Distr ...
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, in political science Political science is the scientific study of politics Politics (from , ) is the set of activities that are associated with making decisions In psychology, decision-making (also sp ...
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 In economics, contract theory studies how economic actors can and do construct contractual arrangements, generally in the presence of information asymmetry. Because of its connections with both agency (law), agency and incentiv ...
. 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 In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and n ...
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 handshakeA golden handshake is a clause In language, a clause is a part of the sentence that constitutes or comprises a predicate (grammar), predicate. A typical clause consists of a subject (grammar), subject and a predicate, the latter typically a verb p ...
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 Fire is the rapid oxidation (mild reducing agent) are added to powdered po ...
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 unintentionally r ...
issues involved with takeovers. Similar issues occur when a publicly held asset or non-profit organization undergoes
privatization Privatization (or 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 a heav ...
. 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 (e.g.
Procter & Gamble The Procter & Gamble Company (P&G) is an American multinational consumer goods A final good or consumer good is a final product In Production (economics), production, a final product, or finished product is a product (business), product th ...
takeover of
Gillette Gillette is an American brand of safety razors and other personal care products including shaving supplies, owned by the multi-national corporation Procter & Gamble (P&G). Based in Boston Boston (, ), officially the City of Boston, is t ...
) # 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 (e.g.
L'Oréal L'Oréal S.A. is an international personal care Personal care or toiletries are consumer A consumer is a person or a group who intends to order, orders, or uses purchased goods, products, or Service (economics), services primarily for personal ...

L'Oréal
's takeover of
Body Shop The Body Shop International Limited, trading as The Body Shop, is a British cosmetics Cosmetics are constituted from a mixture of chemical compounds derived from either natural sources or synthetically created ones.Schneider, Günther ...
) # Increase in
economies of scale In microeconomics Microeconomics is a branch of mainstream economics Mainstream economics is the body of knowledge, theories, and models of economics, as taught by universities worldwide, that are generally accepted by economists as a basis ...

economies of scale
# 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 Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hellenic Republic, is a country located in Southeast Europe. Its population is approximately 10.7 mi ...
markets (Bad for consumers, although this is good for the companies involved in the takeover) # Likelihood of job cuts # Cultural integration/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 A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state ...
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 profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit ...

dividend
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), ''Leverage'' (album), a 2012 album by Lyriel *Leverage (dance), a type of dance connection *Leverage (finance), using giv ...
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 Economics () is a social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behav ...
for governments, employees, suppliers and other
stakeholders Stakeholder may refer to: *Stakeholder (corporate), a group, corporate, organization, member, or system that affects or can be affected by an organization's actions *Project stakeholder, a person, group, or organization with an interest in a projec ...
.


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 Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
,
Canada Canada is a country in the northern part of North America North America is a continent A continent is any of several large landmasses. Generally identified by convention (norm), convention rather than any strict criteria, ...

Canada
,
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United Kingdom. Some prefer to use Britain as shorth ...

United Kingdom
,
France France (), officially the French Republic (french: link=no, République française), is a transcontinental country This is a list of countries located on more than one continent A continent is one of several large landmasses ...

France
and
Spain , image_flag = Bandera de España.svg , image_coat = Escudo de España (mazonado).svg , national_motto = , national_anthem = , image_map = , map_caption = , image_map2 ...

Spain
. They happen only occasionally in
Italy Italy ( it, Italia ), officially the Italian Republic ( it, Repubblica Italiana, links=no ), is a country consisting of a peninsula delimited by the Alps The Alps ; german: Alpen ; it, Alpi ; rm, Alps; sl, Alpe ) are the highest ...

Italy
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 ) , image_map = , map_caption = , map_width = 250px , capital = Berlin Berlin (; ) is the Capital city, capital and List of cities in Germany by population, largest city of Germany by both area and population. Its 3,769,495 inh ...

Germany
because of the
dual board Dual or Duals may refer to: Paired/two things * Dual (mathematics), a notion of paired concepts that mirror one another ** Dual (category theory), a formalization of mathematical duality ** . . . see more cases in :Duality theories * ...
structure, nor in
Japan Japan ( ja, 日本, or , and formally ) is an island country An island country or an island nation is a country A country is a distinct territory, territorial body or political entity. It is often referred to as the land of an in ...

Japan
because companies have interlocking sets of ownerships known as
keiretsu A is a set of companies A company, abbreviated as co., is a legal entity In law, a legal person is any person A person (plural people or persons) is a being that has certain capacities or attributes such as reason, morality, conscio ...

keiretsu
, nor in the
People's Republic of China China (), officially the People's Republic of China (PRC; ), is a country in East Asia East Asia is the eastern region of Asia Asia () is Earth's largest and most populous continent, located primarily in the Eastern Hemisphere ...

People's Republic of China
because the
state owned State ownership, also called government ownership and public ownership, is the ownership of an industry Industry may refer to: Economics * Industry (economics) In macroeconomics, an industry is a branch of an economy that produces a clos ...
majority owns most publicly listed companies.


Tactics against hostile takeover

There are quite a few tactics or techniques which can be used to deter a hostile takeover. * Bankmail * Crown Jewel Defense *
Golden parachute A golden parachute is an agreement between a company and an employee (usually an upper executive) specifying that the employee will receive certain significant benefits if employment is terminated. These may include severance pay, cash bonuses, st ...
*
GreenmailGreenmail 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 In business, a takeover is the purchase of one company (law), company (the ''target'') by another ...
* Killer bees *
Leveraged recapitalizationIn corporate finance, a leveraged recapitalization is a change of the company's capital structure, usually substitution of Equity (finance), equity for debt Overview Such recapitalizations are executed via issuing Bond (finance), bonds to raise mone ...
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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 lob ...
* Lock-up provision * Nancy Reagan Defense * Non-voting stock * Pac-Man defense * Shareholder rights plan, Poison pill ** Flip-in ** Flip-over ** Jonestown Defense ** Pension parachute ** People pill ** Voting plans * Safe harbor (commerce), Safe Harbor * Scorched-earth defense * Shareholder rights plan * Staggered board of directors * Standstill agreement * Targeted repurchase * Top-ups * Treasury stock * White knight (business)#Hostile firm's strategies, Gray Knight * White knight (business), White knight * Whitemail#Economics, Whitemail


See also

* Breakup fee * Concentration of media ownership * Control premium * List of largest mergers and acquisitions * Mergers and acquisitions * Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. * Scrip bid * Squeeze out * Successor company * Transformational acquisition


References


External links

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Acquisition Financing
{{Authority control Mergers and acquisitions Corporate finance