Bailout Takeover

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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.
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RELATED FAQS
  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 >>

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