SRM ONLINE EDUCATION

MBA

MERGERS, ACQUISITIONS AND CORPORATE VALUATION

Categories of Merger

5. Takeover

Categories of Merger

A merger is said to occur when two or more companies combine into one company. Mergers
may take any one of the following forms.

 Amalgamation

 Absorption

 Combination

 Acquisition

 Takeover

 Demerger

The term takeover is very similar and alike to an acquisition. In the process of
takeover, one company will purchase or acquire another for an agreed amount in cash
or the number of shares. However, it is noteworthy to note that, as the term suggests, a
takeover will most possibly be an unfriendly and hostile action in which one company
acquires or takes over enough shares of the another (normally more than 50 percent).
This is done so that the acquirer company is able to take over the stake and operations
of the target company.

What are the Types of Takeover?

The types of Takeover have been explained below:

• Reverse Takeover:

• Reverse takeovers are also termed as the Bail Out takeovers.

• This form of takeover is undertaken for the profit-earning concerns that bail out the
financially feeble or a weak company by taking over them.
• However, it is pertinent to note that such a financially weak company is not at all a
sick company.

• Further, a reverse takeover is basically an approach that is mostly opted by

the Private Limited Companies that acquire or takeover a Public Company as it
saves them from following the lengthy procedure of conversion to a public company
by conventional IPOs.

• Friendly Takeover:

• Under this sort of takeovers, bidders generally informs the Board of Directors of the
concerned company about the offer prior to making an offer to the outside Company.

• Normally, the board and shareholders are closely connected and associated, so the
private acquisition is normally friendly.

HostileTakeover:

A hostile takeover is a sort of forced takeover in which an acquirer company acquires

or purchases the target company. Further, in this case, the management of the said
Target Company is reluctant to agree for the merger or is unwilling to any merger for
takeover.

Furthermore, a takeover is recognised as a hostile takeover if the Board of the target

company rejects or discards the offer, still, the bidder continues to pursue it.

Examples of Takeover

The only example of a successful hostile takeover in the Indian market occurred in
February 1998. In this case, the India Cements Limited (“ICL“), bid for the Raasi
Cements Limited (“RCL“), and also made an open proposal for 20 percent of the
RCL’s shares at Rs 300 per share.

This offer was made at that time when the share price of the RCL’s was at Rs. 100 on
the recognized stock exchange.
Further, the financial Institutions also held a substantial stake in RCL, and so a
prolonged battle resulted among the ICL, RCL, and the Financial Institutions.

Throughout the period of the public offer, all the promoters of RCL reached a
conclusion in which they decided to sell its 32 percent stake to the ICL. The price
offered was lower than the open offer price.

Afterwards, ICL also swallowed out the Financial Institutions in an open proposal and
increased their stake holdings in the RCL to 85 percent.

Conclusion

Both the Acquisitions and takeovers are quite similar and alike to each other, as in
both the acquisitions and takeovers, the concerned acquirer firm purchases or acquires
the target firm, and both the firms will operate as one larger entity.

The only significant difference between the takeover and acquisition is that the
Process of Acquisition in normally a well-planned operation where both the parties
mutually agree on the terms and conditions.

In contrast, the process of Takeover is basically a hostile act.