Bailout Takeover


DEFINITION of 'Bailout Takeover'

A scenario in which a government or profitable company acquires control of a financially unstable company with the goal of returning it to a position of financial strength. In a bailout takeover, the government or strong company takes over the weak company by purchasing its shares, exchanging shares or both. The acquiring entity develops a rehabilitation plan for the weak company, describing how it will be managed and by whom, how shareholders will be protected and how its financial position will be turned around.

BREAKING DOWN 'Bailout Takeover'

An example of a bailout takeover is NPNC Financial Services' 2008 takeover of National City Corp. National City experienced massive losses because of the subprime mortgage crisis, and PNC used TARP funds to bail it out. PNC purchased about $5.2 billion in National City’s stock to acquire it; some people said the purchase price was less than National City’s fair market value. PNC became the fifth-largest U.S. bank as a result of the bailout takeover, but numerous National City employees lost their jobs at the bank’s headquarters.
Another example of a bailout takeover is the U.S. government’s takeover of Chrysler and General Motors in 2008 to prevent the companies’ bankruptcy and the subsequent loss of approximately 1 million jobs in the industry. Under the takeover’s terms, the government loaned the two companies $17.4 billion and required them to reduce their debt, decrease workers’ wages and benefits, and create restructuring plans. The government retained the ability to call the loans if the companies didn’t uphold their end of the bargain. The companies later received additional funds from the government, but they were forced through bankruptcy anyway, causing both stockholders and bondholders to lose everything. The bailout was criticized as primarily benefiting labor unions since workers kept their jobs but investors lost everything.
  1. Takeover

    A corporate action where an acquiring company makes a bid for ...
  2. Backflip Takeover

    An uncommon type of takeover in which the acquirer becomes a ...
  3. Clandestine Takeover

    An attempt to gain control over a company through secretive means. ...
  4. Hostile Takeover Bid

    An attempt to take over a company without the approval of the ...
  5. Reverse Takeover - RTO

    A type of merger used by private companies to become publicly ...
  6. Hostile Takeover

    The acquisition of one company (called the target company) by ...
Related Articles
  1. Fundamental Analysis

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  2. Home & Auto

    The Getty Oil Takeover Fiasco

    It was the largest takeover in history and one of the most dramatic. Learn all about the fate of Getty Oil.
  3. Investing Basics

    Warding Off Hostile Takeovers

    The purpose of this article is to provide a general overview of hostile corporate takeovers, while highlighting a general course of action against such activity. This article provides basic information ...
  4. Entrepreneurship

    Water Cooler Finance: Canadian Takeover And U.S. Tax Breaks

    As Wall Street set to close for the holidays, a few companies held off on their Christmas shopping to give the financial world something to talk about.
  5. Economics

    Failed Takeovers During The Recession

    Takeover attempts were popular in late 2008 to 2009, but some deals just didn't make it.
  6. Mutual Funds & ETFs

    Corporate Takeover Defense: A Shareholder's Perspective

    Find out the strategies corporations use to protect themselves from unwanted acquisitions.
  7. Options & Futures

    Pinpoint Takeovers First

    Use these seven steps to discover a takeover before the rest of the market catches on.
  8. Active Trading Fundamentals

    Trade Takeover Stocks With Merger Arbitrage

    This high-risk strategy attempts to profit from price discrepancies that arise during acquisitions.
  9. Bonds & Fixed Income

    Trademarks Of A Takeover Target

    These tips can lead you to little companies with big prospects.
  10. Investing

    Why Is Financial Literacy and Education so Important?

    Financial literacy is the confluence of financial, credit and debt knowledge that is necessary to make the financial decisions that are integral to our everyday lives.
  1. What is the difference between an acquisition and a takeover?

    There is no tangible difference between an acquisition and a takeover; both words can be used interchangeably - the only ... Read Full Answer >>
  2. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>
  3. Are companies with high Book Value Of Equity Per Share (BVPS) takeover targets?

    Companies with high book value of equity per share (BVPS) can be good takeover targets if those companies are public and ... Read Full Answer >>
  4. Do negative externalities affect financial markets?

    In economics, a negative externality happens when a decision maker does not pay all the costs for his actions. Economists ... Read Full Answer >>
  5. What is the difference between disposable and discretionary income?

    According to the Bureau of Economic Analysis, or BEA, disposable income is the amount of money an individual takes home after ... Read Full Answer >>
  6. What are the major laws (acts) regulating financial institutions that were created ...

    Presidents George W. Bush and Barack Obama, in conjunction with Congress, signed into law several major legislative responses ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  2. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  3. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  4. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  5. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  6. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!