Take-over

3 key takeaways

• A take-over occurs when one company gains control of another, often through the acquisition of a majority stake.
• Take-overs can be friendly or hostile, depending on whether the target company consents to the acquisition.
• Understanding take-overs helps in analyzing corporate strategies, market dynamics, and the potential impacts on shareholders and operations.

What is a take-over?

A take-over is a corporate action in which one company, known as the acquirer or bidder, gains control of another company, referred to as the target. This control is typically achieved by purchasing a significant portion, or all, of the target company’s shares or assets. The purpose of a take-over can vary, including expanding market share, acquiring new technologies, or achieving synergies.

Take-overs can be categorized as either friendly or hostile. In a friendly take-over, the target company’s management and board of directors agree to the acquisition, often after negotiation and mutual agreement on the terms. In a hostile take-over, the acquirer pursues the acquisition without the consent of the target company’s management, often going directly to the shareholders or using other aggressive tactics.

How does a take-over work?

• Identification of target: The acquirer identifies a target company that aligns with its strategic objectives, such as market expansion, diversification, or acquiring new technology.
• Due diligence: The acquirer conducts thorough due diligence to assess the target’s financial health, operations, and potential risks.
• Offer proposal: The acquirer makes an offer to purchase the target company’s shares or assets. This offer can be presented to the target’s board of directors in a friendly take-over or directly to shareholders in a hostile take-over.
• Negotiation and agreement: In a friendly take-over, the target company’s management and board negotiate the terms of the acquisition, including the purchase price and any conditions. Once agreed, the deal is put to a vote by the shareholders.
• Acquisition: Upon agreement or successful acquisition of a majority stake, the acquirer gains control of the target company. This may result in changes to management, operations, and strategy.
• Integration: The acquirer integrates the target company into its operations, aiming to achieve the strategic benefits of the acquisition, such as cost savings, increased market share, or enhanced capabilities.

Examples of take-overs

• Friendly take-over: In 2006, Disney’s acquisition of Pixar for $7.4 billion was a friendly take-over, with both companies agreeing to the terms and benefiting from the merger’s synergies in animation and entertainment.
• Hostile take-over: In 2011, the acquisition of Cadbury by Kraft Foods was initially hostile, as Cadbury’s management resisted the offer. Kraft eventually succeeded by directly appealing to Cadbury’s shareholders and securing a majority stake.
• Leveraged buyout (LBO): In an LBO, a company is acquired using a significant amount of borrowed money, with the target company’s assets often used as collateral for the loans. An example is the 1989 buyout of RJR Nabisco by Kohlberg Kravis Roberts (KKR).

Understanding take-overs is crucial for analyzing corporate strategies, market dynamics, and their impacts on shareholders, employees, and industry competition. For further exploration, consider studying specific case studies of take-overs, the regulatory environment governing such transactions, and the strategic motives behind different types of acquisitions.