takeover

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Takeover

General term referring to transfer of control of a firm from one group of shareholders to another group of shareholders. Change in the controlling interest of a corporation, either through a friendly acquisition or an unfriendly, hostile, bid. A hostile takeover (with the aim of replacing current existing management) is usually attempted through a public tender offer.

Acquisition

An investment in which a company or person buys a publicly-traded company, or, more commonly, most of the shares in that company. For example, if Corporation A buys 51% or more of Corporation B, then Corporation B becomes a subsidiary of Corporation A, and the activity is called an acquisition. A single investor may buy out a publicly-traded company; one calls this "going private." Acquisitions occur in exchange for cash, stock, or both. Acquisitions may be friendly or hostile; a friendly acquisition occurs when the board of directors supports the acquisition and a hostile acquisition occurs when it does not. See also: Antitakeover measure.

takeover

The acquisition of controlling interest in a firm. Although the term is often used to refer to acquisition by a party hostile to the target's management, many takeovers are friendly. See also friendly takeover, raider, unfriendly takeover.

takeover

or

acquisition

the acquisition by one firm of another firm. For companies listed on the STOCK MARKET this involves the acquiring firm either buying in the open market, or bidding for the voting SHARES in the target firm (See BID, TAKEOVER BID). Unlike a MERGER, which is usually arranged by mutual agreement between the two firms' management, a takeover is often resisted by the target firm's management, so that the bidder must convince shareholders that selling out to the acquirer, or taking shares in it in the case of a share exchange, is of benefit to them. Although a 51% stake in the target company would be sufficient to allow the acquiring company to exercise effective control, generally it would wish to take full control so as to be free from the interference of minority interests.

Takeovers are a form of EXTERNAL GROWTH by which firms expand in a horizontal, vertical and conglomerate direction. Conglomerate takeovers (the acquisition of a firm in an unrelated market) are undertaken primarily as a means of spreading business risks and to enable the firm to reorientate itself away from static or declining markets into areas offering good long-term growth and profit potential (see DIVERSIFICATION). Vertical takeovers (the acquisition of a firm which supplies inputs to the acquirer or which distributes its products) may enable the firm to cut its costs by, for example, linking together a series of sequentially related input assembly operations or reducing stockholding costs; vertical takeovers give the firm greater security of input supplies and access to distribution channels and the potential to put non-integrated competitors at a disadvantage (see VERTICAL INTEGRATION). Horizontal takeovers (the acquisition of a competitor operating in the same market) may allow the firm to reduce its costs by realizing economies of scale in production and marketing, and by taking over the rival supplier the firm can increase its market share and perhaps exercise some degree of monopolistic control over the market (see HORIZONTAL INTEGRATION).

From society's point of view takeovers may be beneficial in so far as they improve efficiency and cut costs and prices, but also (potentially) harmful if they eliminate competition and create monopolies. For this reason, in the UK, under the FAIR TRADING ACT, 1973, takeovers and mergers which lead to, or extend, a firm's market share of a particular product beyond 25%, or where the value of assets taken over is greater than £70 million, can be referred by the OFFICE OF FAIR TRADING to the COMPETITION COMMISSION to decide whether or not they are in the public interest. See MARKET ENTRY, BARRIERS TO ENTRY, CITY CODE ON TAKEOVERS AND MERGERS, BUSINESS POLICY, MANAGEMENT BUY-IN, MANAGEMENT BUYOUT, COMPETITION POLICY (UK), COMPETITION POLICY (EU).

takeover

or

acquisition

the acquisition by one FIRM of some other firm. Unlike a MERGER, which is usually arranged by mutual agreement between the firms involved, takeovers usually involve one firm mounting a ‘hostile’ TAKEOVER BID without the agreement of the victim firm's management. For publicly quoted companies, this involves one company buying 50% or more of the voting shares of the other so as to exercise effective control over it, although generally the acquiring company would wish to purchase all the shares of the other company.

Three broad categories of takeover may be identified:

  1. horizontal takeovers, involving firms that are direct competitors in the same market;
  2. vertical takeovers, involving firms that stand in a supplier-customer relationship;
  3. conglomerate takeovers, involving firms operating in unrelated markets that are seeking to diversify their activities.

From the firm's point of view, a takeover can be advantageous because it may enable the firm to reduce production and distribution costs, acquire BRAND names, expand its existing activities or move into new areas, or remove troublesome competition and increase its market power. In terms of their wider impact on the operation of market processes, takeovers may, on the one hand, promote greater efficiency in resource use, or, on the other hand, by reducing competition, lead to a less efficient allocation of resources. In sum, they may involve, simultaneously, both benefits and detriments (see MERGER for further discussion).

Under the FAIR TRADING ACT 1973, takeovers that create or extend a firm's market share of a particular product in excess of 25%, or where the value of assets acquired is over £70 million, can be referred by the OFFICE OF FAIR TRADING to the COMPETITION COMMISSION to determine whether or not they are in the public interest. See also ASSET STRIPPER, COMPETITION POLICY (UK), COMPETITION POLICY (EU), WILLIAMSON TRADEOFF MODEL, HORIZONTAL INTEGRATION, VERTICAL INTEGRATION, DIVERSIFICATION, CITY CODE, MARKET ENTRY.

References in periodicals archive ?
Their report includes an index of all 143 hostile bids for control reviewed during the 10-year period -- with breakout information on target industry, market capitalization and deal outcomes.
We are expecting a much larger number of hostile bids this year supported by the huge levels of capital available.
Although the Livedoor-NBS flap signals that hostile bids for Japanese companies remain unwelcome, offering M & A advice is acceptable.
Philips Electronics NV is not giving up on its hostile bid to acquire VLSI Technology Inc and has extended the $777m offer to April 16.
Then, if in the future there is ever a hostile bid made for the company, we might get a bonus, though it will not be quite as good as the ones Mr Brown and Mr Lambert are to receive.
In addition, Express Scripts has made a hostile bid to acquire CMX.
US food giant Kraft is set to sweeten its hostile bid for Cadbury as it looks to melt the resolve of the Dairy Milk maker's shareholders, it was reported yesterday.
But it also hinted at a hostile bid by reserving the right "to pursue all necessary steps" to win over the firm's shareholders if the deal was opposed.
US Airways on Monday bolstered the financial muscle behind its hostile bid for bankrupt Delta Air Lines, adding Morgan Stanley as a lead financial backer alongside Citigroup.
6 percent in Sapporo Holdings, and some industry observers speculate the fund may consider a takeover bid for the brewer after its recent unsuccessful hostile bid for Myojo Foods Co.
The CEO made the statement in a message to employees two days after a hostile bid was made by US Airways Group Inc for Delta Air Lines.
British-based steel magnate Lakshmi Mittal today said there had been a "very positive reception" to his hostile bid for main rival Arcelor.