Takeovers regularly occur in the business world, and there are different routes a business takeover can take. One such route is called the friendly takeover, which essentially means that the acquisition of the company has the support of both companies involved in the deal. As in a friendly takeover the process is based on mutual acceptance of the attempted purchase, both entities are interested in going through with the merger. When a company or such other entity approaches the target company, the target company’s board and management team will agree to the merger or acquisition offer made to them.
When do takeovers occur?
A takeover takes place when one company, organisation or a group of investors decides to buy a controlling stake in another company. In a takeover, the attempt to gain control will take place by purchasing the stocks of the company. The company that is being pursued can take the different approach to the takeover. Depending on the company’s approach the takeover can be referred to as a friendly takeover or a hostile takeover.
Example of a friendly takeover
Let’s assume company A is looking to buy an overall majority in company B. Company A approaches company B’s board with a potential bid. Company B’s board then discusses and often votes on the bid. If the company B board decides the deal is beneficial to the company, they will accept the offer and recommend the deal to shareholders. After regulatory and shareholder approval, the deal will be finalized.
Differences in takeovers of private and public companies
Takeovers most often involve publicly traded companies. But companies can also acquire and merge with private companies. Takeovers of private companies are typically friendly, as they only require the approval of the private company’s board.
The friendly takeover is the opposite of a hostile takeover. In a hostile takeover, the target company’s board and management team does not want to sell and tries to prevent the buyout.
Why friendly takeovers occur?
In a friendly takeover, the target company often has a lot to benefit from the takeover. The biggest determinant behind a friendly takeover is often the price per share being offered to the target company. The price is often better than the current market price of the company’s shares. In some instances, the target company might receive other benefits such as further investment or a better opportunity to expand the company to new markets.
Friendly takeover doesn’t guarantee a sale
It is important to understand that a friendly takeover doesn’t necessarily mean the deal will go through. Even if the board and management approve the buyout term, all deals will be subject to regulatory approval.Each nation’s regulatory board may reject the deal, even if neither company is against it. For example, the country’s regulatory board might deem the deal to lead into a monopoly position. The merger or acquisition might also require shareholder approval. In rare instances, company’s shareholders might reject the board’s recommendation to sell.
Current takeover climate
Most takeover deals conducted today are friendly takeovers. This is partly because companies are better equipped to protect themselves against hostile takeovers and can resist forced mergers.