What is Corporate Takeover?
A Corporate Takeover describes an acquisition of a company, in which the acquirer obtains a controlling stake in the target.
Corporate Takeover: M&A Strategy (Step-by-Step)
A corporate takeover occurs when a majority stake in a target company is acquired by a strategic or financial buyer.
Corporate takeovers can be categorized as either hostile or friendly, which is predicated on the receptiveness of the target company’s management team and board of directors to the initial acquisition offer, i.e. their openness to consider the offer and negotiate the terms.
Strategic acquirers engage in corporate takeovers namely for the potential long-term revenue and cost synergies related to consolidating a market, offering a more comprehensive, improved mix of products and services, end market expansion (i.e. the increased reachability to customers), and the removal of competition.
In contrast, financial buyers (i.e. private equity firms) participate in corporate takeovers to achieve a specific investment return on behalf of their limited partners (LPs), i.e. the investors that provided the firm with the capital to engage in such activities.
The process of a corporate takeover is rather complex, however from a high level, the following list summarizes the general timeline:
| Timeline | Description |
|---|---|
| Step 1. Tender Offer |
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| Step 2. Internal Meetings |
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| Step 3. Hiring of 3rd Party Advisory |
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| Step 4. Negotiation of Terms |
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| Step 5. Shareholder Vote |
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Types of Corporate Takeovers: Hostile Takeover vs. Friendly Takeover
Corporate takeovers can be categorized as either a friendly takeover or a hostile takeover.
- Friendly Takeover: A friendly takeover occurs if the target company’s management team and board of directors are receptive to the offer and agree to be acquired.
- Hostile Takeover: In a hostile takeover, the initial offer to acquire the target company is rejected by management and the board. The buyer might back out in response, or continue to pursue the acquisition, which sets the premise of a hostile takeover.
The target company’s management and board of directors – in most friendly takeovers – might understand the merits of the acquisition and the synergies rationalizing the offer, i.e. the revenue benefits and cost savings from the business combination.
The negotiation process is not necessarily easier, however, the two parties are more open to arriving at amicable terms, resulting in a higher probability of closure (and fewer complexities, such as M&A defense tactics like the poison pill defense).
Generally speaking, most shareholders that actively participate and vote tend to trust the guidance of management, although there are exceptions.
On the other hand, a hostile takeover tends to follow an unsuccessful attempt at a friendly bid and subsequent collapsed negotiations with the company’s executives.
However, the bidder – despite objections from management and the board – can still pursue the acquisition by going directly to the shareholders and convincing enough of them to vote in favor of the acquisition.
In a proxy fight, the hostile acquirer attempts to convince a sufficient number of existing shareholders to vote against the existing management team to complete the proposed acquisition.
One critical factor here in terms of shareholder sentiment is the recent performance of the company with regard to its earnings reports and stock price, as underperformance tends to work in the favor of the hostile bidder.
