Friendly Takeover

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Takeovers

A takeover is the purchase or acquisition of one, target company by another, acquiring or bidding company.


Friendly Takeovers

A friendly takeover is an offer that is welcomed publicly by the management (Board of Directors (and the Supervisory Board if any)) of the target company.


Typically, but not necessarily, after the board of directors had approved a buyout offer from the acquiring firm, the general meeting (shareholders) will also vote in favor of the buyout. This is likely to occur if the premium in the price per share that the acquiring company is offering (over the current market price) is substantial.


The shareholders may receive cash for their shares in the target company, or (more commonly) an agreed-upon number of shares and/or bonds of both companies are exchanged.


In case of a friendly takeover, the bidder can conduct extensive due diligence into the affairs of the target company, providing the bidder with a comprehensive analysis of the target company's finances. Also, banks are likely to support a friendly takeover by providing loans.


Note that even if the general meeting approves the transaction, the acquisition may still require regulatory approval.


Hostile Takeovers

The opposite of a friendly takeover is a hostile takeover, where 1. the Board of Directors of the target corporation rejects the buyout offer, fights the acquisition and recommends to the shareholders not to accept the offer by the acquiring company, but the acquirer continues to pursue it, or 2. makes the offer directly after having announced its firm intention to make an offer.

 

A Hostile Takeover normally occurs only with publicly traded companies, as it requires the acquirer to bypass the board of directors and purchase the shares from other sources.

In case of a friendly takeover, the bidder can only access publicly-available information about the target company, leaving the bidder vulnerable to hidden risks regarding the target company's finances. Banks are generally less willing to support a hostile takeover, because of the relative lack of target information which is available to the acquiring firm.


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Compare with: Anti Takeover Mechanisms  |  White Knight  |  Mergers and Acquisitions  |  Leveraged Buy-Out  |  Management Buy-out  |  Acquisition Integration Approaches  |  Outsourcing

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