What Is Friendly Takeover?

A friendly takeover is the act of target company's management and board

of directors agreeing to be absorbed by an acquiring company.

KEY TAKEAWAYS

 A friendly takeover is a scenario in which a target company is willingly

acquired by another company.
 Friendly takeovers are subject to approval by the target company's
shareholders, who generally greenlight deals only if they believe the
price per share offer is reasonable.
 Friendly takeover deals must achieve regulatory approval by the U.S.
Department of Justice (DOJ).
 Friendly takeovers stand in stark contrast to hostile takeovers, where
the company being acquired does not approve of the buyout, and
often fights against the acquisition.
Understanding Friendly Takeover
A friendly takeover is typically subject to approval by both the target
company’s shareholders and the U.S. Department of Justice (DOJ). In
situations where the DOJ fails to grant approval for a friendly takeover, it's
typically because the deal violates antitrust (anti-monopoly) laws.

In a friendly takeover, a public offer of stock or cash is made by the

acquiring firm. The board of the target firm will publicly approve the buyout
terms, which subsequently must be greenlit by shareholders and
regulators, in order to continue moving forward. Friendly takeovers stand in
stark contrast to hostile takeovers, where the company being acquired
does not approve of the buyout, and often fights against the acquisition.

In a majority of cases, if the board approves a buyout offer from an

acquiring firm, the shareholders follow suit, by likewise voting for the deal’s
passage. In most prospective friendly takeovers, the price per share that's
being offered is the chief consideration, ultimately determining whether or
not a deal is approved.

For this reason, the acquiring company usually seeks to offer fair buyout
terms, such as buying shares at a premium to the current market price. The
size of this premium, given the company's growth prospects, will determine
the target company's support for the buyout.
 
Takeovers initially seen as friendly may turn hostile when a target
company’s board and shareholders reject the buyout terms.

Friendly Takeover Example

In December 2017, drugstore chain CVS Health Corp. (CVS) announced it
would acquire health insurer Aetna Inc. (AET) for $69 billion in cash and
stock. Both companies' shareholders approved the merger in March 2018,
bringing the combined organization one step closer to finalizing a deal that
would ultimately transform the healthcare industry.

The DOJ approved the merger in October 2018 on the condition that Aetna
follow through on its plan to sell its Medicare Part D business to WellCare
Health Plans. CVS and Aetna completed their merger the following month.

By transforming many CVS storefronts into community medical hubs for

primary care and basic procedures, the merged company has sought to
reign in health care costs by helping patients comply with prescribed drug
regimens which may cut hospitalizations.

This friendly takeover came at a time when healthcare companies and

providers, including insurers, drugstores, doctors and hospitals were
coming under pressure to lower costs. As of 2016, U.S. health spending
equaled 17.9% of the nation’s gross domestic product (GDP) and is
expected to reach approximately 19.7% by 2026.