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Investopedia explains 'Busted Takeover'
The term 'busted takeover' is used in the world of mergers and acquisitions, or "M&A." Mergers, acquisitions and takeovers allow companies to develop competitive advantages and increase shareholder value. In a merger, two companies mutually agree to join forces and become one company. An acquisition is a corporate action in which one company purchases most or all of a target company's ownership stakes in order to take control of the target company. Acquisitions can be either friendly, where the target company agrees to be acquired, or hostile, where the target company does not agree and resists the acquisition. A hostile acquisition is often called a takeover, or a hostile takeover.
A busted takeover may be a successful strategy when the acquiring company has limited cash (and needs to borrow to fund the purchase) and the target company has undervalued assets that the acquiring company wishes to exploit. For example, assume company ABC wants to acquire company XYZ because it is looking to diversify. Company ABC is cash poor and will need to leverage itself to finance the deal. As a term of the deal, company ABC must agree to sell off some of company XYZ's assets and give the proceeds to the financier, repaying part of the amount that company ABC had to borrow to finance the deal.
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