'Takeover' is explained in detail and with examples in the Corporate Finance edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
A takeover is a corporate event where a company chooses to acquire another firm in an effort to gain full control over the target firm in question. They often do this by buying a majority percentage of the firm’s outstanding shares.
If such a move is successful, the company which is acquiring the target obtains control over and responsibility for its target firm’s holdings, operations, and debts. If the target firm proves to be a publically traded stock company, then the company which is acquiring must place an offer to buy all of the outstanding shares of the target company.
There are several different types of takeovers in the world of business. Welcome takeovers are those like mergers and acquisitions. They typically proceed calmly as the two companies involved in the situation consider it to be a positive end scenario for all. The opposite type of takeover is known as hostile or unwelcome takeover. These often turn out to be aggressive since the receiving party does not willingly or voluntarily participate or even give its consent.
Hostile takeovers are exactly like they sound. The firm which is doing the acquiring may resort to underhanded tactics. Some of thee include a dawn raid. In this clever maneuver, a predatory firm purchases a large portion of the company’s stock at the immediate opening of the market. This leads to a target firm losing control over its company before it even is aware of what is occurring. The target company’s management and board of directors could choose to staunchly resist these unsolicited efforts via such defenses as taking a poison pill. Poison pills are where the shareholders of the target firm buy additional shares at a discounted price in order to dilute the holdings of the acquirer, causing the takeover to become potentially prohibitively expensive.
There are various reasons that a company would pursue a takeover. This is practically the same end result as an acquisition. Companies can perform like a bidder by attempting to build up their market share or create larger economies of scale which will aid the company in lowering its overhead so that it can boost its profits.
Firms which are the most attractive types of takeover targets are those which possess a unique advantage with a specific service or unique product. This includes smaller firms with profitable services or products but inadequate financing. Another similar company that is geographically near might decide that by combining their forces they could boost efficiency. Other examples are companies which are viable but that have to pay too high an interest on their debt which might be effectively refinanced for a better rate if a bigger and more powerful firm with superior credit ratings acquired it.
A few years ago, ConAgra tried to engage in a friendly takeover to acquire competitor Ralcorp. As the first advances were spurned, ConAgra demonstrated it would instead go the route of a hostile takeover. Ralcorp retaliated by instituting a form of poison pill strategy. ConAgra was not to be so easily outmaneuvered. They upped the ante by proffering $94 a share. This amounted to significantly more than the going rate of $65 per share for Ralcorp at the time the initial acquisition talks began.
Ralcorp declined and beat back the hostile attempts; though in the end the two companies came back to the negotiating table the next year. Eventually the deal succeeded via a friendly strategy as ConAgra paid $90 per share. At this point and time, Ralcorp had finished spinning off its division Post Cereal. This meant that the final price per share offering from ConAgra amounted to substantially more than the prior year’s original offer.