What Is a Takeover Bid?

A takeover bid is a type of corporate action in which a company makes an offer to purchase another company. In a takeover bid, the company that makes the offer is known as the acquirer, while the subject of the bid is referred to as the 澳洲幸运5官方开奖结果体彩网:target company. ﷺThe acquiring company generally offers cash, stock, or a combination of both in an attempt to assume control of its target.

Understanding Takeover Bids

Any activity that is expected to have a direct, material impact on its 澳洲幸运5官方开奖结果体彩网:stakeholders (e.g., shareholders and creditors)—is called a corporate action. Corporate actions require the approval of the company's 澳洲幸运5官方开奖结果体彩网:board of directors (B of D), and, in some cases, approval from certain stakeholders. Corporate actions can vary, ranging from bankruptcy and liquidation to mergers and acquisition🐓s (M&A) such as takeover bids.

Managers of potential 澳洲幸运5官方开奖结果体彩网:acquirers often have different reasons for making takeover bids and may cite some level of synergy, tax benefits, or dive🎉rsification. For instance, the acquirer may go after a target firm because the target's products and services align with its own. In this case, taking it over could help the acquirer to cut out the competition or give it access to a b🅰rand new market.

The potential acquirer in a takeover usually makes a bid to purchase the target, normally in the form of cash, stock, or a mixture of both. The offer is taken to the company's board of directors, which either approves or rejects the deal. If approved, the board holds a vote with 澳洲幸运5官方开奖结果体彩网:shareholders for further approval. Should they be happy to proceed, the deal must then be examined by the Department of Justice (DOJ) to ensure it doesn't violate 澳洲幸运5官方开奖结果体彩网:antitrust laws.

Empirical studies are mixed, but history shows, in post-merger analysis, a target company's shareholders often benefit most, likely from the premiums paid by acquirers. Contrary to many popular Hollywood movies, most mergers begin friendly. Although the idea of the hostile takeovers by sharks makes for good entertainment, corporate insiders kဣnow hostile bids are an expensive undertaking, and many fail, which can be costly professionꦬally.

Types of Takeover Bids

ꦑ There are generally four types of takeover bids: Friendly, hostile, reverse, or backflips.

Friendly

A 澳洲幸运5官方开奖结果体彩网:friendly takeover bid takes place when both the acquirer and the target companies work together to negotiate the terms of the deal. The targ🌳et's B of D will approve the deal and recommend that shareholders vote in favor of the bid.

Drug store chain CVS acquired Aetna in a friendly takeover for $69 billion in cash and stock. The deal was announced in December 2017, approved by shareholders of both companies in March 2018, and then given the go-ahead by the DOJ in October 2018.

Hostile

Rather than going through the B of D of the target company, a hostile bid involves going directly to the target's shareholders with the bid. Hostile bidders issue a 澳洲幸运5官方开奖结果体彩网:tender offer, giving shareholders the opportunity to sell their stock to the🃏 acquirer at a substantial premium within a set timeframe.

Unlike a friendly takeover, the target is unwilling to go through with the merger and may resort to certain tactics to avoid being swallowed up. These strategies can include 澳洲幸运5官方开奖结果体彩网:poison pills or a 澳洲幸运5官方开奖结果体彩网:golden parachute.

Reverse

In a 澳洲幸运5官方开奖结果体彩网:reverse takeover bid, a private company bids to buy a public corporation. Since the public company already trades on an exchange, this takeover can help the private company become listed without having to go through the tedious and complicated process of filing the paperwork necessary to complete an 澳洲幸运5官方开奖结果体彩网:initial public offering (IPO).

Backflip

澳洲幸运5官方开奖结果体彩网:Backflip takeover bids are fairly rare in the corporate world. In this kind of bid, an acquirer looks to become a 澳洲幸运5官方开奖结果体彩网:subsidiary of the target. Once the merger is complete༒d, the acquirer retains control of the combined corporation, which usually bears the name of the target. This type of takeover is normally used when the acquirer lacks the brand recognition of the ta💞rget.

Example of Takeover Bids

In July 2011, 澳洲幸运5官方开奖结果体彩网:activist investor Carl Icahn offered to pay Clorox shareholders $76.50 a share to take the company private. At the time, Icahn was the company's largest shareholder, having accumulated a 9% stake starting in December 2010. Nevertheless, his unsolicited bid was refused by the board of 💮directors.

Icahn subsequently raised his offer to $80 a share, valuing the company at $10.7 billion. This offer, too, was rejected by the board. His bids having failed, Icahn attempted to take over the company's board of directors. Facing significant resistance from the company and shareholders, he aborted his efforts in September of that year.

The Bottom Line

A takeover bid occurs when one company seeks to take over another by acquiring a majority of its voting shares. Takeovers can be beneficial for the target company, since shareholders receive a premium for their voting stock. However, takeovers are sometimes controversial, especially if they reduce competition in the market.