A:

When a firm makes an official bid to take over a target company, a legal offer is created. The firm making the offer becomes an offeror, while the target becomes the offeree. If the target firm accepts the offer, the offeror has an obligation to complete the transaction. Both parties are able to cancel the offer, eliminating any legal requirement for the bidder to acquire its target.

The most straightforward way of canceling a bid is for the offeree to reject the offer. The bid offer is also canceled if the length of time of the bid lapses. For example, let's say the acquiring firm demands an answer within one week. If the target does not respond within the given week, the offer will legally be terminated. The last way for the target company to cancel a bid is to produce a counteroffer. The counteroffer eliminates the first bid, but opens the door for additional negotiations by creating a new offer.

Terminating an offer is simple for the bidding company. The offeror may officially withdraw the offer before the offeree accepts the bid. All of the above actions will effectively relieve the bidder of the obligation to purchase the target company.

For related reading, see Pinpoint Takeovers First.

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