Takeover

A Takeover is where a Company gains control over another Company, acquires more than 50% of the Outstanding Shares.

A takeover involves an Acquiring Company, buying the controlling interest, more than 50% in another company or Target Company. This comes under the banner of Mergers and Acquisitions (M&A). The actions of the Acquiring Company can be welcomed by the Target Company or unwelcomed, in which case it will be deemed hostile. The motives of the Acquiring Company can be many ranging from, geographical gaining access to another market, product diversification, gaining economies of scale, or just simply to become bigger so they do not become a target themselves. If the Target Company is listed on a Stock Exchange, then there could be several steps involved.

The first step could involve the Acquiring Company purchasing some stock in the Target Company. Then, in a second step, the Acquiring Company will announce a formal takeover bid, a Tender Offer, at a certain Stock Price. The Tender Offer will usually be at a price, comfortably above the current Share Price. If the traded Share Price shoots over the Tender Offer, then another bid might be expected by the Stock Market. At this point, the Board of the Target Company will need to recommend or reject the offer. The Board must act in the interests of Shareholders. If the takeover is approved and competed, in many cases a third step is involved. The Acquiring Company is obliged to purchase all outstanding Shares. Then the Target Company will be delisted.