Takeover: Change in Corporate Control

A detailed overview of takeovers, including types, techniques, historical context, and related terms.

A takeover refers to a change in the controlling interest of a corporation. This significant event can occur through different forms, namely friendly acquisitions, mergers, or hostile bids. Each type of takeover comes with its own set of strategies and implications for the companies involved.

Types of Takeovers

Friendly Takeover

A friendly takeover occurs when the target company’s management and board of directors agree to be acquired. This cooperative approach usually benefits both parties, as terms are mutually agreed upon.

• Example: The acquisition of Instagram by Facebook.

Hostile Takeover

A hostile takeover happens when the target company’s management resists the acquisition. The acquiring company circumvents management by appealing directly to shareholders or attempting to replace management to gain approval for the takeover.

• Example: Oracle’s hostile takeover of PeopleSoft.

Special Considerations in Takeovers

• Shark Repellent Techniques: Measures employed by a company to avoid a hostile takeover. These can include tactics like “poison pills” (special rights or securities issued to make takeovers difficult), “golden parachutes” (large benefits for executives if they are ousted post-takeover), and “white knights” (finding a more favorable company to take over instead).

Historical Context and Examples

Historical Takeovers

Takeovers have shaped corporate landscapes for decades. Notable historical takeovers include:

• RJR Nabisco Takeover (1988): One of the largest leveraged buyouts in history.
• AT&T and Time Warner (2018): A significant merger in the media and telecommunications sectors.

Case Studies

Hostile Takeover of PeopleSoft by Oracle:

• Oracle’s bid began as hostile and involved several aggressive tactics before finally reaching a settlement.

Friendly Takeover of Pixar by Disney:

• Agreed upon by both company’s boards, resulting in successful integration and mutual growth.

Applicability in Modern Business

• Strategic Growth: Companies can quickly acquire new technologies, enter new markets, or scale their operations.
• Synergies: Achieving operational efficiencies and cost reductions by combining resources.
• Market Power: Gaining a larger market share and influence.

Comparisons and Related Terms

• Merger: A mutual agreement where two companies combine to form a new entity.
• Acquisition: A company purchases another company but both entities may continue to exist separately.
• Leveraged Buyout (LBO): Acquiring a company using a significant amount of borrowed money.

FAQs

What is the difference between a takeover and a merger?

A takeover usually involves one company acquiring another without necessarily forming a new entity, whereas a merger involves two companies forming a new entity by mutual agreement.

What is a poison pill in the context of takeovers?

A poison pill is a defensive strategy used by a target company to make itself less attractive or more difficult to acquire by potential hostile acquirers.

Why might a company resist a takeover?

Management may resist to protect their jobs, maintain control, or believe that the offer undermines the company’s true value or strategic plan.

References

1. Gaughan, P. A. (2017). Mergers, Acquisitions, and Corporate Restructurings. Wiley.
2. Weston, J. F., & Weaver, S. C. (2001). Mergers and Acquisitions. McGraw-Hill.

Summary

Takeovers represent a fundamental aspect of corporate strategy and finance, involving the transfer of control from one entity to another. These transactions can be friendly or hostile, each with its own set of strategies and implications. Understanding the historical context, types, special considerations, and related terminology can better prepare individuals and organizations to navigate the complex landscape of corporate takeovers.