The term 'takeover' in commerce refers to one
company (the acquirer) purchasing another (the target).
Such events resemble mergers, but without the formation of a new
company.
Corporate takeovers occur readily in the United States and in the
United Kingdom. They do not happen often in Germany because of the
dual board structure, in Japan because companies have interlocking
sets of ownerships known as keiretsu or in the People's Republic of
China because the state majority-owns most publicly listed companies
there.
- A friendly takeover consists of a straight
buyout of a company, and happens all the time. The shareholders
receive cash or (more commonly) an agreed-upon number of shares
of the acquiring company's stock.
- A hostile takeover occurs when a company attempts
to buy out another whether they like it or not. A hostile takeover
can occur only through publicly traded shares, as it requires
the acquirer to bypass the board of directors and purchase the
shares from other sources. This is difficult unless the shares
of the target company are widely available and easily purchased
(i.e., they have high liquidity). A hostile takeover may presage
a corporate raid.
- A reverse takeover can occur in different
forms:
- a smaller corporate entity takes over a larger one.
- a private company purchases a public one.
- a method of listing a private company while bypassing most
securities regulations, whereby which a shell public company
buys out a functioning private company whose management then
controls the public company.
There are a variety of reasons that an acquiring company may wish
to purchase another company. Some takeovers are opportunistic:
the target company may simply be very reasonably priced, for one reason
or another, and the acquiring company may decide that in the time
period that's important to it, it will end up making money by purchasing
the target company, because of its normal profitability. The massive
holding company Berkshire Hathaway seems to profited very well over
time by purchasing many companies opportunistically in this way.
Other takeovers are strategic in that they are thought
to have secondary effects beyond the simple effect of the profitability
of the target company being added to the acquiring company's profitability.
For example, an acquiring company may decide to purchase a company
that is profitable on its own accord but also has good distribution
capabilities in new areas which the acquiring company can utilize
for its own products as well. A target company might be attractive
because it allows the acquiring company to enter a new market with
a running start, without having to take on the risk, time, and expense
of starting a new division that would compete in this new market.
An acquiring company could decide to take over a competitor not
only because the competitor is profitable, but in order to eliminate
competition in its field and make it easier, in the long term, to
raise prices; or in the belief that the combined company can be
more profitable than the two companies would be separately due to
a reduction of redundant functions; or, if an acquiring company
has a major competitor it wants to attack, it may purchase a target
company which already competes with that major competitor in some
other area or product line.
Critics often charge that very large companies execute takeovers
in order to boost their reported revenue (sales to customers), without
giving sufficient regard to profit, which generally takes a hit
when a company is acquired because of all the costs involved, and
because a premium is always paid if the target company is financially
healthy and not already desperate to be taken over. The widespread
belief in this criticism is demonstrated by the fact that a takeover
announcement typically drives up the stock price of the target company,
and forces down that of the acquiring company.
The target company has several methods to avoid a takeover, if
it wishes. These include legal actions, as in the case of the Hewlett-Packard
purchase of Compaq, or the use of a poison pill, as set up by Transmeta.
Most dot-com companies were created for the express purpose of
being taken over with a consequent immediate profit for their owners,
as opposed to the usual purpose of creating a business: to create
profit for its owners over time by generating cash which is paid
in dividends.
