Meaning of Acquisition/Takeover
An acquisition also known as a takeover, is the buying of one company by another. An acquisition typically has one company – the buyer-that purchases the assets or shares of the seller,with the form of payment being cash,the securities of the buyer, or other assets of value to the seller.
Acquisition is a more general term, enveloping in itself a range of acquisition transactions. It could be acquisition of control,leading to takeover of a company. It could be acquisition of tangible assets,intangible assets, rights and other kinds of obligations.
Limitations of acquisition
- High cost involved in acquisition
- Problems of valuation
- Clash of cultures
- Upset customers
- Problems of integration
- Resistance from employees
- High failure rate
- Diseconomies of scale.
Types of Acquisitions / Takeover
Hostile Takeover and Tender Offer
A Hostile Takeover means that the acquired company does not want to be acquired, for business reasons,personal reasons,job security reasons. It is a hostile takeover if the management of the company being taken over is opposed to the deal. A hostile takeover is sometimes organized by a corporate raider. Hostile takeovers frequently results in job losses,factory shutdowns, and downsizing for the benefit of the acquirer or the resulting company.
The primary methods of conducting a hostile takeover are as follows:
- Tender offer:
- Proxy fight:
- Creeping tender offer:
Friendly takeovers often develop a different tone and are easier to manage. A “friendly takeover” is an acquisition which is approved by the management. Before a bidder makes an offer for another company, it usually first informs the company’s board of directors. In an ideal world, if the board feels that accepting the offer serves the shareholders better than rejecting it, it recommends the offer be accepted by the shareholders.
In a private company, because the shareholders and the board are usually the same people or closely connected with one another, private acquisitions are usually friendly. If the shareholders agree to sell the company, then the board is usually of the same mind or sufficiently under the orders of the equity shareholders to cooperate with the bidder. This point is not relevant to the UK concept of takeovers, which always involve the acquisition of a public company.
Other type of reserve
Reserve Takeover: A “reverse takeover” is a type of takeover where a private company acquires a public company. This is usually done at the instigation of the larger, private company, the purpose being for the private company to effectively float itself while avoiding some of the expense and time involved in a conventional IPO.
Back Flip Takeovers: Back flip takeover is any sort of takeover in which the acquiring company turns itself into a subsidiary of the purchased company. This type of a takeover rarely occurs.
Bail out Takeovers: Bail out take over is the takeover of a financially weak company by a profitable company. These forms of takeovers are resorted to bailout the sick companies,to allow the company for rehabilitation as per the schemes approved by the financial institutions. The lead financial institutions will evaluate the bids received for acquisitions the financial position and track record of the acquirer.