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§
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!
