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Glossary Acquisition: The purchase of the controlling interest or ownership of another company. This can be affected by: y y y y y Agreement with the persons having majority of the stake Purchase of shares in the open market To make takeover offer to the general body of share holders Purchased of new shares by private treaty Acquisition of share capital
Amalgamation It is blending of two or more companies. The shareholders of each company would become the shareholders of the company which is undertaking the activity. It is similar to a merger. Acquiree, Transferee, Victim, Offeree, Target Company: The company which is being merged or taken over by the other company. Acquisition of assets Acquirer may purchase only assets or some specific assets and not all the assets and liabilities of the company. Acquirer, Predator, Offeror, Corporate raider: The company which is making a bid for the merger or takeover of another company Business Cycle A recurring pattern of expansion and contraction in the economy. The average cycle is three to four years. Bottom Line The net income "line" of the income statement Capitalization Term used to describe a company¶s permanent capital, long-term debt and equity.
After 5%. Common Stock A security representing a share of ownership in a corporation. Measures the extent of debt used in relation to the company¶s permanent capital. Determined by dividing long-term debt by long-term debt plus equity Common Shares Outstanding The number of common shares of stock outstanding at the end of the year. they ought to inform the stock exchange. The acquiring company benefits by economies of resource sharing and diversification. A mathematical model showing an "appropriate" price. Circular merger Companies producing distinct products seek amalgamation to share common distribution and research facilities and promoting market enlargement. Share holders get the shares of the new company. Consolidation The fusion of two companies in which both the companies loose their identity and form a new company. based on relative risk combined with the return on risk-free assets.Capital Asset Pricing Model An element of modern portfolio theory. including stock held by the company in its treasury. Capitalization Ratio Measurement of the company¶s debt component of the company¶s capitalization. Conversion Price The price paid for a common stock that is obtained by converting either convertible bonds or preferred convertible stock Covenants . Clandestine Takeover (or) Creeping Takeover The clause 40 of the Listing Agreement of stock exchange allows a person to buy up to 5% stake in a company without any prior permission. Continuing Operations Term used in an income statement to denote recurring income as opposed to income generated by sales of assets or discontinued operations.
or with conversion of convertible securities into common stock. All the assets of the old company would be transferred to the new company and henceforth the new company would pay all the creditors. Demerger or corporate split or division This takes place when part of a company¶s undertaking is transferred to a newly formed or an existing company. Conglomerate merger It is an amalgamation of the companies in two different industries. that can occur in a merger when more shares are issued. they put large block of shares of their own company in the hands of shareholders of friendly company to make their own company least attractive for takeover bid. bonds. (Instead of selling the assets. The company sells these assets at its own initiative leaving the rest of the company intact. or lines of credit. (Eg: DCM and Modi Industries.) Competitive Bid This can be made by any person within 21 days of public announcement of the offer made by the acquirer. Discontinued Operations . Demerger by agreement In this. The reminder of the first company¶s undertaking continues to be vested in it and the share holders of the main company gets reduced by that extent. Dilution The reduction of earnings. For this purpose.) Defensive merger The directors of a threatened company may acquire another company for shares as a defensive measure to forestall the unwelcome takeover bid. the company may also lease them or mortgage them so that the attraction of free assets to the predator is suppressed. This can be made by the public announcement and should be for the equal number of shares or more for which the first offer was made. or the value of a stock. the demerger takes place by an agreement with the shareholders and the creditors of the company. Some or that part of the shares of the first company are also transferred to the new company. These precious assets attract the raider to bid for the company¶s control. Usually written by the lender to protect its position as a creditor of the borrowers Crown Jewels Sec 23 of SEBI Takeover Regulations indicates that the company calls its precious assets as crown jewels to depict the greed of the acquirer under the takeover bid.Provisions in the legal agreements on loans.
This is also known as the strike price. These items are reported separately on the income statement Divestiture They are sale. of a segment of a company to a third party which is an outsider. Golden Parachutes (or) First Class Passengers Strategy This envisages a termination package for senior executives and is used as a protection tool against the takeover. Equity Carved Out It is a type of divestiture and different to spin off. It resembles the IPO of some portion of equity stock of a wholly owned subsidiary by the parent company. Some of the subsidiary¶s shares are offered for sale to general public for increasing cash inflow without losing control. for cash or for securities. Green Mail A large block of shares is held by an unfriendly company. Hostile takeovers . Holding company The holding company would have more than 50% of the total voting power and has the control on the other company. which are at same stage of industrial process. Friendly mergers Mergers and acquisitions through the negotiations. (This could prove to be an expensive deal to the raider. Horizontal merger It is a merger of two competing firms. This is also called split off IPO. Exercise Price The price at which an option may be exercised. willingness and consent of the acquiree company are called friendly mergers.Operations that have been or will be discontinued by the company. which forces the target company to repurchase the stock at a substantial premium to prevent the takeover.) Grey Knight A friendly party of the target company who seeks to takeover the predator.
Joint Holding or Joint voting agreement Two or more major shareholders may enter into agreement to block voting or to block sale of shares or may sell the shares together. Junk Bond A bond that involves greater than usual risk as an investment and pays a relatively high rate of interest. unamortized debt discounts and deferred charges Interlocking shareholdings or Cross Shareholdings Two or more group companies acquire shares of each other in large quantity or one company may distribute shares to the share holders of its group company to avoid threats of takeover bids. Insider Trading SEBI Regulations 1992. This agreement is entered into with the cooperation of Offeree Company¶s management. but may silently and unilaterally pursue efforts to gain controlling interest in it against the wishes of the management. typically issued by a company lacking an established earnings history or having a questionable credit history. says that it is a criminal offence for an individual who is an insider by virtue of being connected with the company and has access to price sensitive information which other share holders do not have. House of Issue The investment bank that underwrites and floats a security issue.An acquirer may not offer the proposal to acquire the target company¶s undertaking. especially by leverages buyouts. when they were used to help finance the purchase of companies. Leveraged Buy outs This is the acquisition of a company by its management personnel. Intangibles All intangible assets like goodwill.) Joint Venture This is an agreement between two or more companies where there will be an agreed contribution and participation of the respective companies. trademarks. It is also known as management buyout. patents. They are also called raids or takeover raids. Junk bonds became a common means for raising business capital in the 1980s. . Management may raise capital from the market or institutions to acquire the company on the strength of its assets. which is the safest device or defense. (If the interlocking of shareholdings is accompanied by joint voting agreement then the joint system of defence is termed as "Pyramiding".
Plant/Assets Ratio . Proxy Battles They take place when the agenda items at the meeting are likely to be opposed by dissident shareholders. Poison Put A covenant allowing the bond holder to demand repayment in the event of a hostile takeover. This figure is relatively meaningless since the current value of a stock is its price established in the market. This is made for the equity shares. Par Value The face value of a bond. it survives and others loose the corporate identity. which offeror had paid in the past 12 months for that shares. the arbitrary value given to the stock by the issuing company. Pac-Man Strategy The target company attempts to takeover the hostile raider. Also. Management of the company collect proxies to face these opponents in the meeting of Board of Directors. regardless of its stated par value. Partial Bid When a bid is made for acquiring part of the shares of a class of capital where the offeror intends to obtain effective control. This happens when the target company is larger than the predator.Liquidating Value The amount which is available if the assets of the business are sold off and converted to cash Merger Merger is the fusion of two or more companies (OR) Merger is a combination of two or more companies into a single company where. Merchant Banker They are the middle men in settling negotiations for merger or takeover between the offeree and offeror. The survivor acquires the assets and liabilities of the rest. Mandatory Bid This bid is laid by the offeror when he has 30% or more and less than 50% of the voting rights of the offeree company and this should be in cash and the offer price should be the highest price.
Such features are called Shark Repellents. There is no money transaction. Shark Repellent The companies amend their Bye-Laws and regulations to be less attractive for the raider company. It does not alter ownership proportion in any company. Spin Off It is a kind of a demerger where an existing parent company distributes on a pro-rata basis all the shares it owns in a controlled subsidiary to its own shareholders by which it gains effect to make two of the one company or corporation. The company may issue that 80-95% of the shareholders should approve for the takeover and 75% of the Board of Directors consent. Swallowing Poison Pills strategy The target company might issue convertible securities which are converted into equity to deter the efforts of offeror and such conversion dilutes the bidder¶s shares and discourages acquisition. the new company should give the debentures to the respective holders and thus the first company would loose the identity. a company transfers its undertaking and its assets to a new company in consideration of the issue of the new company¶s shares to the first company¶s members. It is a more stringent measure of shortterm liquidity than the current ratio because it excludes inventories from current assets (which presumes that current liabilities cannot be paid with inventory). subsidiary¶s assets are not valued. transaction is not treated as stock dividend and tax free exchange. And if the first company members debentures are not paid off. Reconstruction In this. Or the target company might raise borrowings distorting normal debt: equity ratio. Quick (Asset) Ratio A liquidity measure: cash plus cash equivalents plus trade receivables divided by total current liabilities. Split Off This occurs when equity shares of a subsidiary company are distributed to some of the parent company¶s shareholders in exchange for their holdings in parent company. Also known as the acid test ratio. buildings and equipment. Both the companies exist and carry on business. Split Up It is s diversion of a company into two or more parts through transfer of stock and parent company ceases to exist. Swap ratio .The percentage of total assets that is tied up in land.
Eg: Tata Tea offer to shareholders of Continental Coffee Ltd in which more than 50% of the shareholders offered to Tata Tea. Time taken in completion of the takeover is less than that in the merger. This is calculated by the valuation of various assets and liabilities of the merging companies.This is an exchange rate of the shares of the companies that would undergo a merger. determination of share exchange. the merging undertaking would be a buyer or a supplier using its product as intermediary material for final production. This offer is made for cash. Takeover bid It is the intention of the acquirer reflected in the action of acquiring the shares of the Target company. (With the higher bid offered by the white knight. Takeover This is similar to acquisition. Vertical merger This would give backward integration to the company to assimilate the sources of supply and forward integration towards the market.) Back Mergers Home Karvy Home . Voluntary winding up The original company which has split into several companies after division could be wound up voluntarily. ie. The clause 25 of SEBI Takeover regulations gives the provision to the White Knight to offer a higher price than the predator to avert the takeover bid. for ex: process of takeover is unilateral and the offeror company decides about the maximum price. Tender offer The acquirer pursues takeover (with out consent of the acquiree) by making a tender offer directly to shareholders of the target company to sell their shares. the process of takeover. transaction involved. the predator might not remain interested in acquisition and hence the target company is protected from the raid. Takeover differs with merger in approach to business combinations ie. White Knights White knight enters the fray when the target company is raided by a hostile suitor.
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