Takeover

DEFINITION of 'Takeover'

When an acquiring company makes a bid for a target company. If the takeover goes through, the acquiring company becomes responsible for all of the target company’s operations, holdings and debt. When the target is a publicly traded company, the acquiring company will make an offer for all of the target’s outstanding shares.

BREAKING DOWN 'Takeover'

A welcome takeover generally goes smoothly because both companies consider it a positive situation. In contrast, an unwelcome or hostile takeover can be quite unpleasant. The acquiring firm can use unfavorable tactics such as a dawn raid (where it buys a substantial stake in the target company as soon as the markets open, causing the target to lose control of the company before it realizes what is happening). The target firm’s management and board of directors may strongly resist takeover attempts through tactics such as a poison pill, which lets the target’s shareholders purchase more shares at a discount in order to dilute the acquirer’s holdings and make a takeover more expensive.

A takeover is virtually the same as an acquisition, except that “takeover” has a negative connotation, indicating the target does not wish to be purchased. Why would one company want to buy another company against that company’s will? The bidder might be seeking to increase its market share or to achieve economies of scale that will help it reduce its costs and thereby increase its profits. Companies that make attractive takeover targets include those that have a unique niche in a particular product or service, small companies with viable products or services but insufficient financing, a similar company in close geographic proximity where combining forces could improve efficiency and otherwise viable companies that are paying too much for debt that could be refinanced at a lower cost if a larger company with better credit took over.

RELATED TERMS
  1. Unbundling

    The process of taking over a large company with several different ...
  2. Lobster Trap

    A strategy used by a target firm to prevent a hostile takeover. ...
  3. Dawn Raid

    When a firm or investor buys a substantial number of shares in ...
  4. Merger

    The combining of two or more companies, generally by offering ...
  5. Acquisition Premium

    The difference between the estimated real value of a company ...
  6. Hostile Takeover

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

    Biggest Life Insurance Companies in the US (PRU, MET)

    Read about the top life insurance companies in the United States as measured by written premiums and learn a little more about their business operations.
  2. 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.
  3. 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.
  4. 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 ...
  5. Forex Education

    Mergers & Acquisitions: An Avenue For Profitable Trades

    When major corporate transactions have a big impact on the currency markets, you can benefit.
  6. Options & Futures

    Pinpoint Takeovers First

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

    Trade Takeover Stocks With Merger Arbitrage

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

    Trademarks Of A Takeover Target

    These tips can lead you to little companies with big prospects.
  9. Options & Futures

    The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.
  10. Stock Analysis

    Dow Chemical: An Activist Investment Analysis (DOW)

    Read about how an activist hedge fund demanded changes at Dow Chemical. Learn about deal structure of the proposed merger between Dow and DuPont.
RELATED FAQS
  1. What usually happens to the price of a stock when a tender offer for shares of the ...

    Usually, the price of a stock rises when a tender offer for shares of the company is made public. A tender offer is an offer ... Read Full Answer >>
  2. How does the level of mergers and takeovers in the Internet sector compare to the ...

    The level of mergers and takeovers in the Internet sector is higher than in the broader market. The Internet sector contains ... Read Full Answer >>
  3. What happens to the stock prices of two companies involved in an acquisition?

    When a firm acquires another entity, there usually is a predictable short-term effect on the stock price of both companies. ... Read Full Answer >>
  4. How long does it take to execute an M&A deal?

    Even the simplest merger and acquisition (M&A) deals are challenging. It takes a lot for two previously independent enterprises ... Read Full Answer >>
  5. 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 >>
  6. What are some common accretive transactions?

    The term "accretive" is most often used in reference to mergers and acquisitions (M&A). It refers to a transaction that ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center