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Takeover Management
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Takeover Management
What is Takeover?
A takeover usually occurs when one company makes a bid to take control of or acquire another, often by buying a majority stake in the target company. The company making the bid is called acquirer in the acquisition process. In contrast, the company that it wishes to take ownership of is called the aim.
A larger corporation usually conducts takeovers for a smaller one. They could be voluntary by a joint agreement between the two companies. In other situations, they can be rejected, in which case, without indicating, the larger organisation goes after the target.
An acquisition, which merges two firms into one, will bring major organisational advantages and performance improvements for shareholders.
Takeover Explained
In the business world, takeovers are relatively common. They are similar to mergers because both processes combine two firms into one. Where they differ, a merger involves two equal companies. In contrast, an acquisition generally involves inequalities—a larger company targeting a smaller one.
There are several reasons why companies could initiate a takeover. An acquiring company will attempt an opportunistic takeover where it thinks the target is priced well.
Some firms may opt for a strategic takeover. It helps the acquirer to reach a new market without any additional time, resources, or risk-taking. The acquirer may also be able to reduce rivalry by going through a strategic takeover. As the acquisition occurs, the purchasing corporation is responsible for all the assets, property, and debt of the target business.
Types of Takeover
Friendly Takeover
Here, the acquirer purchases a controlling interest
in the target only after rounds of negotiations and a final agreement with the latter. The bid is finalized based on the approval of the majority shareholders
Hostile Takeover
This acquirer gains control of the target company by buying the shares of its non-controlling shareholders from the open market. Typically, the shares are purchased over a period of time in a piecemeal manner so that the target remains unaware of the takeover attempt.
Bailout Takeover
This is intended to bail out the sick companies and allow them to rehabilitate as per official schemes approved by the leading financial institution
Reverse Takeover
In this type of takeover, a private entity acquires an already public listed company to list the former on an exchange while effectively avoiding the expenses and lengthy processes involved in the initial public offering
(IPO).
Backflip Takeover
This acquirer turns itself into a subsidiary
of the target company to retain the brand name of the smaller yet well-known company. In this way, the larger acquirer can operate under a well-established brand and gain its market share
Key elements of a takeover
- It’s an attempt to take over the control of a company which is already registered.
- The shares are purchased from the shareholders of a company to an extent of controlling the interest and thereby gaining control.
Types of takeovers as per law
Friendly Takeover
Negotiation happens between the promoters of a company and the investors in a friendly manner to further some common objectives as per Section 395 of the Companies Act, 1956.
Bail-out takeover
Takeover of a financially sick company by a finically well-off company to bail them out from losses as per Sick Industrial Companies (Special Provisions) Act, 1985
Hostile takeover
Hostile takeover where the investors actively pursue the takeover without the knowledge of other company attempted through a public tender offer. as per SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.
Corporate Raiders
Making an offer to shareholders after the board of directors have refused or by completely bypassing them
Types of takeovers as per business context
Horizontal Takeover
Happens between companies from the same industry. The main purpose is increasing the market share or achieving economies of scale. Example Lipton India and Brooke Bond, Bank of Madura with ICICI Bank.
Vertical Takeover
Happens between companies operating at different stages of production within the same industry. Example is Tata Motors acquiring 80% stakes in Trilix Srl
Conglomerate takeover
Happens between companies operating in totally different industries. The main purpose of this kind of takeover is diversification. Example Reliance Industries (RIL) taking over Reliance Petroleum (RPL)
Benefits of a Takeover
- External Growth whereby firms can expand horizontally, vertically and in conglomerate direction
- Diversification into alike markets or increase sales
- Vertical Integration by linking a series of sequentially related input assembly operations
- Reducing costs and redundancies, enhance economy of scale
Downsides of a Takeover
- Eliminate healthy competition and fair trade and encourage monopoly
- At times Goodwill may be paid in excess
- Culture clash within two companies and retrenchment
- Dominance of the parent company
- Hidden liabilities within the target company
Terms in Use
Acquire
A person who, directly or indirectly, acquires the share or the voting right whether by himself or through or with persons acting in concert or control over a target company.
Target Company A company that is listed on any stock exchange and whose shares or voting rights are to be acquired.
Promoter
Any person who is in control of the target company named in the offer document or shareholding pattern
Control
The right to directly or indirectly appoint a majority of directors on the Board of the target company, control management or policy decisions affecting such company.
Direct Acquisition
Is an acquirer directly acquiring shares, voting rights, or control of the targeted company.
Indirect Acquisition
Where the acquirer indirectly exercises or direct the exercise of voting rights of a target company, the acquisition of which would otherwise attract the obligation of making an open offer as per regulations
Open offer
It’s an opportunity to exit their investments in no inferior terms viz a viz their initial investment. It lays down the norms like the pricing, timing, manner, even exemption or relaxation
