Definition
A friendly takeover is a type of acquisition where a company is acquired by another company with its management’s approval and cooperation. In this scenario, the acquiring company first makes a bid to the target firm’s board of directors, and if accepted, the acquiring company will then make a bid to the shareholders. It’s viewed as friendly because the target firm agrees to be purchased, contrasting with a hostile takeover where the target company opposes the merger.
Key Takeaways
- A Friendly Takeover is a type of acquisition where all terms of the takeover are mutually agreed upon by both the acquiring company and the target company. The management and board of directors of the target company approve the transaction and help facilitate it.
- This type of takeover usually results in a more efficient and quick acquisition process, as there is less resistance and more cooperation between the parties. It also tends to preserve the company’s existing operations, brand, and staff.
- However, Friendly Takeovers can still face challenges such as regulatory approvals, as well as agreement from majority shareholders. If the terms aren’t viewed beneficial by shareholders, they can still reject the proposal.
Importance
A Friendly Takeover is a significant concept in finance due to its implications for both the firms involved and the larger economic sector.
In such cases, a company is acquired by another with the consent of the target company’s management and board.
This is essential because it usually results in a seamless transition, reduced business disruption, and better acceptance by the employees of the bought company.
Furthermore, it often enhances shareholder value since the purchasing firm can negotiate a favorable purchase price and terms.
The respect and cooperation involved in friendly takeovers can also foster positive public relations and a stronger industry presence.
Explanation
Friendly takeovers serve the purpose of facilitating a company’s transition of control smoothly and cordially. This type of merger or acquisition is often used when management teams of both acquiring and target companies agree on the terms and believe it’s in the best interest of their organizations.
Because the takeover is orchestrated with the consent and often the assistance of the acquired company’s management, it fosters a cooperative environment between both parties, which is beneficial for facilitating strategic goals, leveraging collective resources, and harnessing synergistic benefits. The primary usage of a friendly takeover is for corporate growth and expansion.
Companies usually undertake friendly takeovers to diversify their product offerings, expand into new markets, consolidate industry presence, realize economies of scale, or attain strategic assets of the target company. Friendly takeovers can also serve to strengthen a company’s competitive position by acquiring a rival company.
Unlike hostile takeovers, friendly takeovers mitigate the risk of management resistance, as well as the accompanying cost and delay in the acquisition process, which aligns with the long-term strategic goals of both companies.
Examples of Friendly Takeover
Disney’s Acquisition of Pixar: In 2006, Walt Disney Co. acquired Pixar Animation Studios for approximately $
4 billion. It was considered a friendly takeover as both companies had a long history of collaboration and successful partnerships. The transaction was seen as a way to combine their resources and talent to produce more creatively successful and profitable animated films.
Berkshire Hathaway’s Acquisition of Geico: In 1996, Warren Buffett’s Berkshire Hathaway completed a friendly takeover of auto insurer Geico, after being long-time shareholders. The takeover was done with the full cooperation of Geico’s management, and eventually proved beneficial for both parties involved.
Google’s Purchase of YouTube: When Google purchased YouTube in 2006 for $
65 billion in stock, it was done amicably and with the agreement of the YouTube founders. This friendly takeover allowed for YouTube’s team to operate independently, while benefiting from Google’s resources and experience.
Friendly Takeover FAQs
What is a Friendly Takeover?
A friendly takeover occurs when a company is acquired by another, with the mutual consent of both companies. The management of the target company willingly approves the takeover by the acquiring entity.
How is a Friendly Takeover different from a Hostile Takeover?
In a hostile takeover, the management of the target company is usually against the transaction. The acquiring company goes directly to the company’s shareholders or fights to replace the management in order to get the acquisition approved. This is not the case in a Friendly Takeover where all parties are in agreement.
What are the advantages of a Friendly Takeover?
Friendly takeovers are often smoother as the working relationship between both companies is generally positive, leading to more effective communication and synergy. It also reduces the risk of damage to the company being taken over because the transition process is more cooperative.
What are the disadvantages of a Friendly Takeover?
Friendly takeovers, while generally more cooperative, can still cause a certain amount of disruption to the business, including possible employee layoffs or structural changes. It can also risk creating a monopolistic market if the takeover company is already a major player in the market.
Can the terms of a Friendly Takeover change over time?
Like any business agreement, the terms of a friendly takeover are subject to change if both companies agree. However, once the agreement is finalized and legal documents are signed, changes to the terms usually require further negotiation and agreement.
Related Entrepreneurship Terms
- Merger and Acquisition (M&A)
- Shareholder Approval
- Hostile Takeover
- Offer Price
- Due Diligence
Sources for More Information
- Investopedia – This has a thorough library of financial terms including ‘Friendly Takeover’.
- Corporate Finance Institute (CFI) – Another reputable source for learning about financial terms and concepts.
- The Balance – A comprehensive personal finance guide that covers a wide range of financial topics.
- Fidelity – A global financial services company which often provides detailed explanations of financial terms and concepts.
