Takeover Bid

Takeover Bid Corporate Acquisitions Mergers and Acquisitions (M&A) Shareholder Offers Corporate Control
A comprehensive overview of the concept of a takeover bid in the context of corporate acquisitions, including explanations of types, outcomes, examples, related terms, and resources for further study.
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Definition

A takeover bid is an offer made to the shareholders of a company by an individual or organization to buy their shares at a specified price in order to gain control of that company. These bids can be classified as either friendly or hostile, depending on whether the company’s board of directors supports the offer or not.

Important Aspects of a Takeover Bid:

  1. Welcome Takeover Bid: The directors of the company advise shareholders to accept the terms, typically leading to a merger.
  2. Hostile Takeover Bid: The board advises against acceptance. This can lead to a takeover battle, where the bidder may improve terms to gain shareholder approval.
  3. Unconditional Bid: The bidder will pay the offered price irrespective of the number of shares acquired.
  4. Conditional Bid: The bidder will only pay the offered price if a sufficient number of shares are acquired to provide a controlling interest.

Regulatory Context:

In the UK, takeovers are regulated by the City Code on Takeovers and Mergers, which incorporates articles from the EU’s Takeover Directive.

Examples of Takeover Bids

  1. Friendly Bid Example:

    • Disney Acquisition of Pixar (2006): Disney offered Pixar shareholders a fixed price per share, which resulted in a successful merger supported by Pixar’s board.

  2. Hostile Bid Example:

    • Vodafone’s Acquisition of Mannesmann (1999): Vodafone made a hostile bid for Mannesmann, which was initially resisted by Mannesmann’s board before eventually being accepted after improved terms.

Frequently Asked Questions

Q1: What is a takeover bid? A takeover bid is an offer made by an individual or organization to purchase shares of a company to gain control of that company.

Q2: What happens if the takeover bid is hostile? In a hostile takeover, the company’s board advises against the bid. The bidder may then improve the bid terms, or alternative bidders (grey knights, white knights) might appear.

Q3: What is an unconditional bid? An unconditional bid is one where the bidder will pay the offered price regardless of the number of shares acquired.

Q4: How are takeovers regulated in the UK? Takeovers in the UK are regulated by the City Code on Takeovers and Mergers, which includes provisions from the EU’s Takeover Directive.

  1. Merger: A union of two or more entities into one, often following a successful takeover bid.
  2. White Knight: A friendly investor or company that offers to acquire a target company to save it from a hostile takeover.
  3. Grey Knight: An investor whose intentions in acquiring a company are unclear, offering conditional alternatives to a hostile bid.
  4. Poison Pill: A defensive strategy used by a target company to make itself less attractive to a hostile bidder.

Online References

  1. Investopedia on Takeover Bids
  2. The UK Takeover Code
  3. Reuters on Mergers and Acquisitions

Suggested Books for Further Studies

  1. “Mergers, Acquisitions, and Other Restructuring Activities” by Donald DePamphilis
  2. “The Art of M&A, Fifth Edition: A Merger Acquisition Buyout Guide” by Alexandra Reed Lajoux
  3. “Mergers and Acquisitions Basics: All You Need To Know” by Michael E. S. Frankel and Larry H. Forman

Accounting Basics: “Takeover Bid” Fundamentals Quiz

### A takeover bid is an offer to purchase shares in which type of scenarios? - [ ] Personal property acquisition - [ ] Corporate property only - [x] Corporate share acquisition - [ ] Real estate purchase > **Explanation:** A takeover bid specifically refers to corporate share acquisition, where the bidder aims to gain control of the company. ### What is a friendly takeover bid? - [x] Where the company's directors recommend shareholders to accept the bid. - [ ] Where the bid is rejected by the company's board. - [ ] Where the bidder holds only a minority interest. - [ ] Where regulatory authorities instigate the bid. > **Explanation:** A friendly takeover bid is one in which the directors of the company advise shareholders to accept the bid terms, usually facilitating a smooth merger. ### In a hostile takeover, the board advises against the bid. True or False? - [x] True - [ ] False > **Explanation:** In a hostile takeover, the company's board of directors recommends against accepting the offer, leading to a possible takeover battle. ### An unconditional bid means the bidder will pay the offered price: - [ ] Only if the majority of shareholders agree. - [x] Regardless of the number of shares acquired. - [ ] If all shareholders agree. - [ ] Only if regulatory approval is obtained. > **Explanation:** An unconditional bid means the bidder commits to paying the offered price regardless of how many shares are acquired. ### Which regulatory code governs takeovers in the UK? - [ ] The UK Corporate Code - [ ] The UK Securities Act - [x] The City Code on Takeovers and Mergers - [ ] The EU Financial Directive > **Explanation:** The City Code on Takeovers and Mergers regulates corporate takeovers in the UK. ### What does the term 'white knight' refer to in a takeover context? - [ ] A hostile bidder - [x] A friendly investor who helps a company avoid a hostile takeover - [ ] An investor with unclear intentions - [ ] A company's internal defensive mechanism > **Explanation:** A white knight is a friendly investor or company that comes to the rescue of the target company to prevent a hostile takeover. ### Why might a grey knight be seen as a safer option compared to a hostile bidder? - [ ] They're the original company investors. - [x] Their intentions are less aggressive and more flexible. - [ ] They are backed by government regulations. - [ ] They decline any initial bid. > **Explanation:** A grey knight's intentions are often seen as a middle ground, neither entirely hostile nor friendly, providing more flexibility than a purely hostile takeover. ### Which entity amplifies the rules of the City Code on Takeovers and Mergers? - [ ] The Red Book of Financial Operations - [ ] The Green Papers on Corporate Governance - [ ] The EU Takeover Directive - [x] The EU Takeover Directive (2005) > **Explanation:** The City Code on Takeovers and Mergers now includes provisions from the EU's Takeover Directive (2005), ensuring comprehensive regulatory oversight. ### **True** or **False**: Conditional bids require acquiring a majority share to offer the price. - [x] True - [ ] False > **Explanation:** Conditional bids stipulate that the bidder will only pay the price offered if sufficient shares are acquired to gain a controlling interest, typically a majority share. ### What is a 'poison pill' in business terms? - [ ] An offer to buy at a high price - [ ] A form of regulatory compliance - [x] A defense mechanism to avoid hostile takeovers - [ ] A merger's legal document > **Explanation:** A 'poison pill' is a defensive strategy employed by a target company to become less attractive to a potential hostile bidder.

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Tuesday, August 6, 2024
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