An agreed bid is a type of takeover bid that is supported by a majority of the shareholders of the target company. This stands in contrast to a hostile bid, which is not welcomed by the majority of the shareholders. An agreed bid often leads to smoother transactions and can be seen as a more amicable and cooperative form of acquisition.
Historical Context
The concept of an agreed bid has evolved alongside the development of corporate mergers and acquisitions. Historically, hostile takeovers were more common in the 1980s during a wave of leveraged buyouts. However, as corporate governance practices improved and regulations became stricter, agreed bids became more prevalent due to their less adversarial nature.
Types and Categories
Friendly Takeovers
Agreed bids fall under the broader category of friendly takeovers. These takeovers are characterized by cooperation between the acquiring and target companies and typically involve negotiations that satisfy both parties.
Cash Offers and Share Swaps
Agreed bids can be further categorized based on the form of payment:
- Cash Offers: The acquiring company pays the shareholders of the target company in cash.
- Share Swaps: The shareholders of the target company receive shares in the acquiring company.
Key Events and Examples
- Disney’s Acquisition of 21st Century Fox (2019): A high-profile example of an agreed bid, where Disney successfully acquired 21st Century Fox with the support of its shareholders.
- Microsoft’s Acquisition of LinkedIn (2016): Another example of an agreed bid where LinkedIn’s shareholders overwhelmingly supported Microsoft’s offer.
Detailed Explanations
The Process of an Agreed Bid
- Proposal: The acquiring company approaches the target company with a proposal.
- Negotiation: Both companies enter negotiations to discuss the terms and conditions.
- Board Approval: The target company’s board of directors reviews and approves the bid.
- Shareholder Approval: The bid is put to a vote among the target company’s shareholders.
- Regulatory Approval: Regulatory authorities may need to approve the transaction.
- Completion: Once approvals are obtained, the transaction is finalized.
Mathematical Models and Valuations
Net Present Value (NPV)
The valuation of an agreed bid often uses the Net Present Value (NPV) model to determine the worth of the target company.
Where:
- \( CF_t \) = Cash Flow at time \( t \)
- \( r \) = Discount rate
- \( C_0 \) = Initial Investment
Merger Valuation Models
Another model used is the Comparable Company Analysis (CCA) which involves comparing the target company to similar companies that have been acquired recently.
Diagrams
Mermaid Diagram: The Process of an Agreed Bid
graph TD
A[Proposal] --> B[Negotiation]
B --> C[Board Approval]
C --> D[Shareholder Approval]
D --> E[Regulatory Approval]
E --> F[Completion]
Importance and Applicability
Benefits
- Minimized Resistance: Reduces resistance from shareholders, leading to smoother integration.
- Positive Public Perception: Seen as mutually beneficial, enhancing corporate image.
- Regulatory Ease: Likely to face fewer regulatory hurdles compared to hostile bids.
Applicability
- Corporate Strategy: Useful for companies looking to expand their market presence or diversify their portfolio.
- Investors: Provides assurance to investors about the stability and future prospects of the combined entity.
Examples
- Vodafone’s Acquisition of Mannesmann (2000): An example where Vodafone made an agreed bid, leading to the largest corporate merger at that time.
- Exxon’s Merger with Mobil (1999): Another agreed bid example that resulted in the creation of ExxonMobil.
Considerations
Regulatory Environment
Adhering to legal and regulatory requirements is crucial for the success of an agreed bid.
Cultural Integration
Ensuring smooth cultural integration post-merger is vital to achieve synergy.
Related Terms
- Hostile Bid: A bid that is not welcomed by the target company’s management and shareholders.
- Merger: The combination of two companies to form a new entity.
- Acquisition: The purchase of one company by another.
Comparisons
- Agreed Bid vs. Hostile Bid: Agreed bids are supported by shareholders, whereas hostile bids face opposition.
- Cash Offer vs. Share Swap: Agreed bids can be executed either through cash payments or share exchanges.
Interesting Facts
- Agreed bids are more likely to succeed compared to hostile bids, as they align the interests of both companies.
- Historical data shows that agreed bids often lead to better long-term performance for the combined entity.
Inspirational Stories
Kraft’s Acquisition of Cadbury
Kraft’s bid for Cadbury turned hostile initially but was eventually agreed upon, showcasing the importance of negotiation and mutual benefit.
Famous Quotes
- Warren Buffett: “The best acquisitions are made without the assistance of a takeover bid.”
Proverbs and Clichés
- “A fair deal benefits all.”
Expressions, Jargon, and Slang
- White Knight: A friendly investor that acquires a firm to prevent a hostile takeover.
FAQs
What is an agreed bid?
How does an agreed bid differ from a hostile bid?
What are the advantages of an agreed bid?
References
- Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum and Joshua Pearl
- Mergers, Acquisitions, and Other Restructuring Activities by Donald DePamphilis
- Financial Times: Various articles on mergers and acquisitions
Summary
An agreed bid is a form of takeover where the bid is supported by the majority of the shareholders of the target company, leading to smoother transactions and greater chances of success. It is a crucial element in the landscape of corporate mergers and acquisitions, emphasizing cooperation and mutual benefit. Understanding agreed bids helps investors, companies, and regulators navigate the complex dynamics of corporate takeovers effectively.
