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Takeover

Takeover

What is a 'Takeover'

A takeover occurs when an acquiring company makes a bid in an effort to assume control of a target company, often by purchasing a majority stake. If the takeover goes through, the acquiring company becomes responsible for all of the target company’s operations, holdings and debt. When the target is a publicly traded company, the acquiring company makes an offer for all of the target’s outstanding shares.

Explaining 'Takeover'

A welcome takeover, such as an acquisition or merger, generally goes smoothly because both companies consider it a positive situation. In contrast, an unwelcome or hostile takeover can be quite aggressive as one party is not participating voluntarily.

Hostile Takeover

The acquiring firm can use unfavorable tactics, such as a dawn raid where it buys a substantial stake in the target company as soon as the markets open, causing the target to lose control of the company before it realizes what is happening. The target firm’s management and board of directors may strongly resist takeover attempts through tactics such as a poison pill, which lets the target’s shareholders purchase more shares at a discount to dilute the acquirer’s holdings and make a takeover more expensive.

Reasons for a Takeover

A takeover is virtually the same as an acquisition, except the term "takeover" has a negative connotation, indicating the target does not wish to be purchased. A company may act as a bidder by seeking to increase its market share or achieve economies of scale that help it reduce its costs and thereby increase its profits. Companies that make attractive takeover targets include those that have a unique niche in a particular product or service; small companies with viable products or services but insufficient financing; a similar company in close geographic proximity where combining forces could improve efficiency; and otherwise viable companies that are paying too much for debt that could be refinanced at a lower cost if a larger company with better credit took over.

ConAgra’s Hostile Takeover Attempt of Ralcorp

ConAgra initially attempted a friendly sale to acquire Ralcorp in 2011. When initial advances were rebuffed, ConAgra intended to work a hostile takeover. Ralcorp responded by using the poison pill strategy. ConAgra responded by offering $94 per share, which was significantly higher than the $65 per share price Ralcorp was trading at when the takeover attempt began. Ralcorp denied the attempt, though both companies returned to the bargaining table the following year.


Further Reading

The performance of UK firms acquiring large cross-border and domestic takeover targetsThe performance of UK firms acquiring large cross-border and domestic takeover targets
www.tandfonline.com [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

The price of corporate acquisition: determinants of cash takeover premiaThe price of corporate acquisition: determinants of cash takeover premia
www.tandfonline.com [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

State takeover statutes and shareholder wealth.State takeover statutes and shareholder wealth.
elibrary.ru [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

Financing bidders in takeover contestsFinancing bidders in takeover contests
www.sciencedirect.com [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

A hostile takeover of nature? Placing value in conservation financeA hostile takeover of nature? Placing value in conservation finance
onlinelibrary.wiley.com [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

Characteristics of Takeover Targets in China Equity Market [J]Characteristics of Takeover Targets in China Equity Market [J]
en.cnki.com.cn [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

ESOPs, takeover protection, and corporate decision-makingESOPs, takeover protection, and corporate decision-making
link.springer.com [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

Do managers make takeover financing decisions that circumvent more effective outside blockholders?Do managers make takeover financing decisions that circumvent more effective outside blockholders?
www.sciencedirect.com [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …

Does the 'Market for Corporate Control'hypothesis explain takeover targets?Does the 'Market for Corporate Control'hypothesis explain takeover targets?
www.tandfonline.com [PDF]
… Applied Financial Economics … Higson and Elliott (1998) note that post-takeover returns are sensitive to the observation period, although, as mentioned earlier … the future efficiency gains from mergers.' This remains an enduring puzzle in the empirical corporate finance literature …


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