Definition
A takeover bid is a corporate action in which an acquiring company makes an offer to purchase another company, typically by buying a majority of its stock. The bid can be made publicly or privately, with the intention of gaining control over the target company. It can occur either friendly, with consent of the target company’s board, or hostile, without their agreement.
Key Takeaways
- A Takeover Bid refers to a corporate action where an acquiring company makes an offer to the board of directors of another company (target company) to buy a substantial portion of the stock shares. This is aimed at gaining control over the target company.
- In a Takeover Bid, the offer price is usually higher than the current market price of the target company’s shares. This is done to entice the shareholders of the target company to sell their shares.
- Depending on the reactions and actions of the target company, Takeover Bids can be classified into two types – friendly bids, where the target company accepts the offer, and hostile bids, where the target company opposes the bid.
Importance
A Takeover Bid is critical in finance because it represents a strategic corporate action in which an acquiring company makes an offer to the target company’s shareholders aiming to obtain control of the target firm. This concept is crucial as it has significant financial implications for both entities involved.
For the acquiring company, it represents a strategic move to expand or diversify its market presence, capitalize on synergies, or gain valuable assets that are possessed by the target company. For the shareholders of the target firm, it often results in premium prices for their shares.
Additionally, takeovers can influence market dynamics, competition, and corporate landscapes, thereby inherently affecting investors, stakeholders, and employment rates. Understanding takeover bids are vital for investors’ decision-making processes and companies’ strategic planning.
Explanation
A takeover bid refers to an acquisition strategy used by companies to gain control over another company. It essentially involves the acquiring company making an offer or “bid” to the target company’s shareholders to purchase their shares, generally at a premium above the current market price.
The main purpose of a takeover bid is to seize control of the targeted corporation. The motive behind this can be to expand operations, gain access to new markets, seize valuable assets, or benefit from synergies.
The takeover bid also serves as an effective strategy for the acquirer to instigate a change in the target company’s management if the acquirer believes it can operate the company more efficiently or profitably. Additionally, takeover bids can also be used as defensive tactics in a competitive business environment to fend off rivals – by acquiring a company, businesses can prevent it from falling into the hands of their competition.
On the shareholder’s end, a takeover bid can provide them with an opportunity to earn profits if the offered price per share substantially exceeds the market rate. Ultimately, takeover bids lie at the heart of corporate actions, enabling businesses to grow and reshape their strategic landscape.
Examples of Takeover Bid
Kraft Heinz’s Takeover Bid for Unilever: In 2017, Kraft Heinz put forward a shocking $143 billion takeover bid for Unilever, one of the world’s biggest consumer goods companies. If successful, this would have been one of the largest corporate mergers in history. However, Unilever rejected the proposal, stating it saw no merit in the deal and that it undervalued the company.
Microsoft’s Takeover Bid for Yahoo: Back in 2008, Microsoft initiated a takeover bid for Yahoo. The tech giant offered around $45 billion for the acquisition. However, Yahoo rejected the bid, believing that it significantly undervalued the company. This failed takeover attempt is considered one of the most notable in recent history due to Yahoo’s later fall in market value.
Comcast’s Bidding War for Sky: One of the most notable recent examples was the bidding war between Comcast and 21st Century Fox over Sky Plc in
Comcast eventually won with a bid of $39 billion, marking one of the largest acquisitions in the media and telecommunications industry. Despite initial resistance from Sky, Comcast was successful by offering a higher price.
FAQ: Takeover Bid
What is a Takeover Bid?
A takeover bid is a corporate action wherein an acquiring company makes an offer, or ‘bid’, to the target company’s shareholders to buy their shares with the aim of gaining control of the target company. The bid could be in the form of cash, shares of the acquiring company, or both.
What are the types of Takeover Bids?
There are two primary types of takeover bids: Hostile Takeover Bid and Friendly Takeover Bid. A hostile takeover bid occurs without the consent of the target company’s board. A friendly takeover bid, on the other hand, has the approval of the target company’s board.
How are Takeover Bids initiated?
To initiate a takeover bid, the acquiring company must first propose an offer to the target company’s shareholders. The terms of the offer typically include a price above the current market value of the target company’s shares to incentivize the shareholders to sell.
What happens after a successful Takeover Bid?
After a successful takeover bid, the acquiring company assumes control of the target company. This might involve changes to the executive team, restructuring of the company, or integration of assets and operations of both companies.
Related Entrepreneurship Terms
- Acquisition
- Hostile Takeover
- Friendly Takeover
- Merger
- Tender Offer
Sources for More Information
- Investopedia: It is a website serving as an online resource for investment and finance information.
- MarketWatch: A website that provides financial information, business news, analysis, and stock market data.
- Bloomberg: It provides financial, economic, and market news and analysis.
- Reuters: An international news organization which also provides financial market and economic news.
