Definition
An agreed bid is a type of takeover bid wherein the shareholders and board of directors of the target company endorse the offer made by the bidding company. This form of bid usually indicates a higher likelihood of a successful acquisition because it is supported and recommended by the key stakeholders of the target entity. This support contrasts starkly with a hostile bid, where the target company’s management and shareholders may resist the acquisition attempts.
Examples
- Company A and Company B: Company A offers to buy all the shares of Company B, and the bid is supported by Company B’s board of directors and a majority of its shareholders. This support makes it an agreed bid and smooths the transaction process.
- Telecom Acquisition: A telecom giant proposes an acquisition of a smaller competitor with promises of keeping major operations intact. The smaller company’s board and major shareholders agree and support the bid, making it an agreed bid.
Frequently Asked Questions
What is the difference between an agreed bid and a hostile bid?
An agreed bid is backed by the target company’s management and a majority of its shareholders, while a hostile bid is opposed by them.
Why do companies prefer agreed bids?
Agreed bids are preferred as they involve less resistance, legal battles, and uncertainty, increasing the chances of a smooth and successful takeover.
How can shareholders influence an agreed bid?
Shareholders can influence an agreed bid by voting for or against it. Majority support is crucial for the bid to proceed.
What role does the board of directors play in an agreed bid?
The board of directors assesses the bid’s benefits and risks and usually recommends it to the shareholders if they find it beneficial for the company.
Are agreed bids always successful?
Not always. Although they have a higher success rate due to support from the target company’s stakeholders, external factors and unforeseen hurdles can still affect the outcome.
Related Terms
- Takeover Bid: An offer made by an acquiring company to purchase shares of the target company.
- Hostile Bid: A takeover bid not approved or welcomed by the target company’s management and shareholders.
- Merger: The combination of two companies into one, often with mutual agreement.
- Acquisition: The act of gaining control over another company by purchasing its shares or assets.
- Shareholder Activism: Actions taken by shareholders to influence a company’s behavior by exercising their rights as owners.
Online Resources
- Investopedia - Takeover Bid
- Harvard Business Review - Mergers and Acquisitions: Key Factors
- Corporate Finance Institute - M&A Guide
Suggested Books for Further Studies
- “Mergers, Acquisitions, and Other Restructuring Activities” by Donald M. DePamphilis
- “The Art of M&A: A Merger Acquisition Buyout Guide” by Stanley Foster Reed and Alexandra Reed Lajoux
- “Strategic Corporate Finance” by Justin Pettit
Accounting Basics: “Agreed Bid” Fundamentals Quiz
### What is an agreed bid primarily characterized by?
- [x] Support from the majority of shareholders and the board of the target company.
- [ ] Opposition from the shareholders.
- [ ] Neutral stance of the company management.
- [ ] Regulatory approval.
> **Explanation:** An agreed bid is characterized by support from both the majority of shareholders and the board of directors of the target company.
### In a friendly takeover, what is another term commonly used for it?
- [ ] Hostile Bid
- [ ] Unsolicited Offer
- [x] Agreed Bid
- [ ] Proxy Fight
> **Explanation:** A friendly takeover is commonly known as an agreed bid, indicating it has the support of the target company’s shareholders and management.
### Why might a company reject a hostile bid but accept an agreed bid?
- [ ] Agreed bids are always higher in value.
- [x] Agreed bids are supported by the management and stakeholders, facilitating smoother transactions.
- [ ] Hostile bids always have legal issues.
- [ ] None of the above.
> **Explanation:** A company might reject a hostile bid and accept an agreed bid because agreed bids have the support and endorsement of the company’s management and stakeholders, making the process smoother.
### Who usually recommends the agreed bid to the shareholders?
- [ ] External auditors
- [ ] Regulatory agencies
- [x] The board of directors
- [ ] Competitors
> **Explanation:** The board of directors usually assesses the bid and recommends it to the shareholders if they find it favorable.
### What increases the likelihood of a successful acquisition in an agreed bid?
- [ ] Involvement of external auditors
- [ ] Absence of regulatory scrutiny
- [x] Support from the target company's stakeholders
- [ ] High bid price
> **Explanation:** Support from the target company's stakeholders, including the board of directors and a majority of shareholders, significantly increases the likelihood of a successful acquisition.
### What kind of resistance is typical in a hostile bid, which is absent in an agreed bid?
- [ ] Regulatory resistance
- [x] Resistance from the target company's management and shareholders
- [ ] Market resistance
- [ ] Competitive resistance
> **Explanation:** Hostile bids face resistance from the target company's management and shareholders, whereas an agreed bid does not because it is supported by them.
### Which type of bid involves less legal confrontations and obstacles?
- [ ] Hostile Bid
- [x] Agreed Bid
- [ ] Proxy Battle
- [ ] None of the above
> **Explanation:** Agreed bids typically involve less legal confrontations and obstacles because they are supported by the target company's management and shareholders.
### What is the usual outcome for agreed bids?
- [ ] Abandonment due to resistance
- [x] Smoother transaction and higher success rate
- [ ] Market instability
- [ ] Considerable delays
> **Explanation:** Agreed bids usually lead to smoother transactions and have a higher success rate given the support from stakeholders without considerable resistance.
### When evaluating an agreed bid, who has the final say in approval?
- [ ] Regulatory body
- [ ] Competitor companies
- [x] Stakeholders/Shareholders
- [ ] Financial analysts
> **Explanation:** The shareholders of the target company have the final say in approving an agreed bid based on their votes.
### What does the endorsement of an agreed bid by the board signify?
- [x] The board considers the bid most advantageous
- [ ] The bid is legally flawless
- [ ] The bid must be higher than market value
- [ ] Room for negotiation
> **Explanation:** The endorsement of an agreed bid by the board signifies that the board considers the bid most advantageous for the company and its shareholders.
Thank you for exploring the concept of an “Agreed Bid” and engaging in our quiz. Keep sharpening your understanding of critical financial and accounting terminologies!
