TAKEOVER

Concept of Takeover
• A takeover bid refers to the purchase of a company (the target) by
another company (the acquirer). With a takeover bid, the acquirer
typically offers cash, stock, or a mix of both, “bidding” a specific price
to purchase the target company for.
Benefits Limitations

Improved productivity Potential HR issues and Job cuts

Cost saving in terms of overheads Management conflicts
Economies of scale Hidden liabilities
Increase Market share Overpayment for purchase of goodwill
Improved profitability on investment Cultural conflicts
Wealth optimization
Takeover tactics
• Bear Hug is an offer to buy a publicly listed company at a significant
premium to the market price of its shares.
• It is an acquisition strategy designed to appeal to the target
company's shareholders.
• Bear hugs are used to pressure a reluctant company's board to
accept the bid or risk upsetting its shareholders.
• Unsolicited in nature, a bear hug bidder makes it difficult for the
target's board to refuse by offering a price well above the pursued
company's market value.
Bear Hug
• A bear hug is an informal offer to acquire a company at a premium to the
market price of its stock, made public without the consent of its board.
• A bear hug counts on the company's shareholders to pressure the board
into accepting the proposed terms or entering negotiations with the maker
of the offer.
• A target company that refuses to accept a bear hug risks being sued or
challenged in board elections.
• Without a tender offer for the shares outstanding, a bear hug is not a
guarantee the bidder will purchase the company at the stated price.
• Although they allow acquirers to approach their target's shareholders
directly, successful bear hugs may lead to the ouster of the target company
Pros Cons
Acquirer can go directly to the shareholders Distracts and draws critical attention to management
and share price

Potential for offer of deal with higher share price Management may be ousted if the bear hug is
successful
Dawn Raid
• During a dawn raid, an investor acquires a substantial number of shares
in a company first thing in the morning, just as the stock market is
opening for business.
• A dawn raid refers to the practice of buying up a large amount of shares
right at the open of the day's trading.
• The goal of a dawn raid is to buy a large number of shares in a target
company by one company to influence a potential takeover of the target.
• Due to the rapid dissemination of price data and exchange and
securities regulations, it is actually quite difficult to achieve the purpose
of a dawn raid in practice.

• Source https://www.investopedia.com/terms/d/dawnraid.asp
Proxy fight
• A proxy fight refers to the act of a group of shareholders joining
forces and attempting to gather enough shareholder proxy votes to
win a corporate vote. Sometimes referred to as a "proxy battle,” this
action is mainly used in corporate takeovers.
• A proxy fight refers to the act of a group of shareholders joining
forces and attempting to gather enough shareholder proxy votes to
win a corporate vote.
• The voting bids in a proxy vote could include replacing corporate
management or the board of directors.
• Proxy fights also emerge over corporate takeovers and mergers,
most notably with hostile takeovers.
How takeover works?
 Types of takeover
• Friendly : Takeover is done with the mutual consent of Target Company. In friendly takeover
the takeover will be completed through negotiations and the takeover bid may be with the
consent of all of the shareholders of Target Company. Basically a friendly takeover occurs when
the board of directors and the shareholders of the company approve the acquisition of Target
Company. Also known as negotiated takeover

• Hostile : A Hostile Takeover occurs without the consent of Target Company and the
management. When the acquirer silently and unilaterally takes control over the target company
against the wishes of the existing management it is hostile takeover. Generally done through
tender offer.

• Bailout Takeover : Ttakeover occurs when the profit earning company takes control over the
financially sick company to bail out the former is called bail out takeover. Financially strong
company takes financially weak company. Turnaround operations of a company without
liquidating assets
Defense strategies
• WHITE KNIGHT: A white knight is a hostile takeover defence whereby a
‘friendly’ individual or company acquires a company/corporation at fair
consideration that is on the verge of being taken over by an ‘unfriendly’ bidder or
acquirer, who is known as the black knight. Unlike a hostile takeover, current
management typically remains in place in a white knight scenario,
and investors receive better compensation for their shares.
• POISSON PILL: This is the most popular and effective defense to combat the
hostile takeovers. Using this method the target company gives existing
shareholders the right to buy stock at a price lower than the prevailing market
price if a hostile acquirer purchases more than a predetermined amount of the
target company’s stock. The purpose of this move is to devalue the stock worth of
the target company and dilute the percentage of the target company equity owned
by the hostile acquirer to an extent that makes any further acquisition
prohibitively expensive for the predator.
• CROWN JEWEL: the target company of a hostile takeover resorts to selling its most
valuable assets in order to reduce its attractiveness to the hostile bidder. The crown jewel
defence is always considered the last-resort defence since the target company will be
intentionally destroying part of its value, with the hope that the acquirer drops its hostile bid.
It is popularly referred to as a Self-Destructive Strategy.

• Greenmail defence refers to the target company buying back shares of its own stock
from a takeover bidder who has already acquired a substantial number of shares in
pursuit of a hostile takeover. It’s a costly defence, as the target company is forced to
pay a substantial premium over the current market price in order to repurchase the
shares. The potential acquirer accepts the greenmail profit it makes from selling the
target company’s shares back to the target at a premium, in lieu of pursuing the
takeover any further. Although this strategy is legal, the acquirer is, effectively, sort of
blackmailing the target company, in that the target must pay the acquirer a premium –
through the share buybacks – in order to persuade it to cease its takeover attempt