Takeover Bid Definition

NEWS ALERT April 15, 2022, 1:36 p.m. EDT: On April 13, Elon Musk submitted a letter to Twitter’s board of administrators providing to buy all excellent shares for $54.20 every, valuing the corporate at $43 billion. Twitter’s board responded with a shareholder rights plan that may dilute Musk’s stake if he acquires greater than 15% of the corporate’s widespread inventory.

What Is a Takeover Bid?

A takeover bid is a kind of company motion through which an organization makes a suggestion to buy one other firm. In a takeover bid, the corporate that makes the provide is called the acquirer, whereas the topic of the bid is known as the goal firm. The buying firm typically presents money, inventory, or a mixture of each in an try to assume management of its goal.

Understanding Takeover Bids

Any exercise that’s anticipated to have a direct, materials influence on its stakeholders (e.g., shareholders and collectors)—known as a company motion. Company actions require the approval of the corporate’s board of administrators (B of D), and, in some circumstances, approval from sure stakeholders. Company actions can range, starting from chapter and liquidation to mergers and acquisitions (M&A) similar to takeover bids.

Managers of potential acquirers usually have totally different causes for making takeover bids and should cite some stage of synergy, tax advantages, or diversification. As an example, the acquirer might go after a goal agency as a result of the goal’s services and products align with its personal. On this case, taking it over might assist the acquirer to chop out the competitors or give it entry to a model new market.

The potential acquirer in a takeover normally makes a bid to buy the goal, usually within the type of money, inventory, or a mix of each. The provide is taken to the corporate’s B of D, which both approves or rejects the deal. If accepted, the board holds a vote with shareholders for additional approval. Ought to they be completely satisfied to proceed, the deal should then be examined by the Division of Justice (DOJ) to make sure it does not violate antitrust legal guidelines.

Empirical research are blended, however historical past reveals, in post-merger evaluation, a goal firm’s shareholders usually profit most, doubtless from the premiums paid by acquirers. Opposite to many well-liked Hollywood films, most mergers start pleasant. Though the thought of the hostile takeovers by sharks makes for good leisure, company insiders know hostile bids are an costly enterprise, and plenty of fail, which might be expensive professionally.

Forms of Takeover Bids

There are typically 4 varieties of takeover bids: Pleasant, hostile, reverse, or backflips.

Pleasant

A pleasant takeover bid takes place when each the acquirer and the goal corporations work collectively to barter the phrases of the deal. The goal’s B of D will approve the deal and advocate that shareholders vote in favor of the bid.

Drug retailer chain CVS acquired Aetna in a pleasant takeover for $69 billion in money and inventory. The deal was introduced in December 2017, accepted by shareholders of each corporations in March 2018, after which given the go-ahead by the DOJ in October 2018.

Hostile

Reasonably than going by the B of D of the goal firm, a hostile bid entails going on to the goal’s shareholders with the bid. Hostile bidders difficulty a young provide, giving shareholders the chance to promote their inventory to the acquirer at a considerable premium inside a set timeframe.

In contrast to a pleasant takeover, the goal is unwilling to undergo with the merger and should resort to sure ways to keep away from being swallowed up. These methods can embody poison capsules or a golden parachute.

Reverse

In a reverse takeover bid, a non-public firm bids to purchase a public company. For the reason that public firm already trades on an trade, this takeover might help the non-public firm turn out to be listed with out having to undergo the tedious and complex strategy of submitting the paperwork obligatory to finish an preliminary public providing (IPO).

Backflip

Backflip takeover bids are pretty uncommon within the company world. In this type of bid, an acquirer appears to be like to turn out to be a subsidiary of the goal. As soon as the merger is accomplished, the acquirer retains management of the mixed company, which normally bears the title of the goal. This kind of takeover is generally used when the acquirer lacks the model recognition of the goal.

Instance of Takeover Bids

In July 2011, activist investor Carl Icahn supplied to pay Clorox shareholders $76.50 a share to take the corporate non-public. On the time, Icahn was the corporate’s largest shareholder, having collected a 9% stake beginning in December 2010. However, his unsolicited bid was refused by the board of administrators.

Icahn subsequently raised his provide to $80 a share, valuing the corporate at $10.7 billion. This provide, too, was rejected by the board. His bids having failed, Icahn tried to take over the corporate’s board of administrators. Dealing with important resistance from the corporate and shareholders, he aborted his efforts in September of that 12 months.