Earlier we had discussed about Merger
today in this article let us discuss about the takeover and different types of
takeover and also the advantages and disadvantages of the takeover.
Takeover
Takeover is a type of acquisition.
Takeover refers to a transaction or series of transaction where an in
individual or group of individuals or a company gains control over management
by acquiring the at least 51% of the equity shares in a company. In a takeover
usually the acquiring firm aren’t aware of the of the purchaser or have very
limited knowledge about it. In corporate there exists a concept called
controlling interest which refers to the proportion of shareholders interest
which helps the shareholders to control the administrative activities of a
company through Board of Directors. In takeover the acquiring company by
purchasing 51% equity shares in the target company gains the control over Board
of Directors and Top Management.
Types of Takeover
There are different types of takeover.
They are as follows,
§ Friendly Takeover
§ Hostile Takeover
§ Bailout Takeover
§ Reverse Takeover
§ Back Flip Takeover
Now let us try to understand each type of takeover in detail
§ Friendly Takeover
It is also
known as “Consent Takeover”In a friendly
takeover the acquirer will purchase the controlling shares only after the
negotiation and agreement with the target firm. The target firm is willing to
get acquired by the acquiring firm. The consideration is negotiated between acquirer
and acquire. The takeover bid finalized with the approval of majority
shareholders.
§ Hostile Takeover
It is also
known as “Violent Takeover”. In this
takeover the firm or individual gains control over a company by purchasing the
required number of shares from non-controlling shareholders in open market. In
this type of takeovers usually small holdings are being targeted and purchased
at different places over a period of time. The target company has no knowledge
about the takeover. The acquirer keeps his identity secret till he gains the
required number of controlling shares in the target firm.
§ Bailout Takeover
Bailout
Takeover refers to the takeover are resorted to bailout the sick companies
allowing the companies for rehabilitates per the approved schemes approved by
the financial institutions. The leading financial institutions will then
evaluate the proposal received for the acquisition and then they will check the
financial position and also track the record of the acquirer firm.
§ Reverse Takeover
Reverse
Takeover refers to a takeover where a private company acquires a public
company. The purpose of private company behind the takeover is to effectively
manage itself and avoid some of the expenses and time involved in the
conventional IPO.
§ Back Flip Takeover
Back Flip Takeover refers to a
takeover where the acquiring firm turns itself into a subsidiary of the
purchased company . This type of takeover usually happens when the larger yet
not well known company acquires the struggling yet well known company. The
purpose is to retain the brand name and carry the operations under the well
established brand and also to gain the market of the struggling company.
Advantages of a Takeover
§ Helps to increase the revenue and sales.
§ Helps To venture into businesses and markets.
§ Helps to increase the market share by acquiring the target company
market.
§ Helps to reduce the competition by acquiring the competitor.
§ Reducing the overcapacity the industry.
§ Enlargement of the brand portfolio.
§ Helps in reduction of the costs.
§ Increases the efficiency as a result of the synergies created out
of acquisition.
§ Helps in strategic expansion of a firm
Disadvantages of Takeover
§ Goodwill is usually paid out excess then it is found during
takeover.
§ When there are two different cultures in acquiring and target firm
it results in reduced efficiency of the employees after the takeover.
§ There will be chances that the jobs will be cut down as a result of
takeover
§ Conflict with the new management may arise
§ The employees of target company may lack the motivation.
§ The hidden liabilities of the target company comes into picture
after the takeover.
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