Takeover

AAA

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.

INVESTOPEDIA EXPLAINS '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. Hostile Takeover

    The acquisition of one company (called the target company) by ...
  5. Merger

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

    The difference between the estimated real value of a company ...
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. If a company offers a buyback of its shares, how do I decide whether to accept the ...

    Tender offers for share buybacks are often made at a premium to the current market price; it may be in an investor’s best ... Read Full Answer >>
  5. How is a tender offer used by an individual, group or company seeking to purchase ...

    A tender offer is made directly to shareholders in a publicly traded company to gain enough shares to force a sale of the ... Read Full Answer >>
  6. Why would it be in the interest of shareholders to accept a tender offer?

    It would be in the best interests of shareholders to accept a tender offer if it is well above the current market price – ... Read Full Answer >>
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. Forex Education

    Mergers & Acquisitions: An Avenue For Profitable Trades

    When major corporate transactions have a big impact on the currency markets, you can benefit.
  5. Active Trading Fundamentals

    Trade Takeover Stocks With Merger Arbitrage

    This high-risk strategy attempts to profit from price discrepancies that arise during acquisitions.
  6. Options & Futures

    Pinpoint Takeovers First

    Use these seven steps to discover a takeover before the rest of the market catches on.
  7. Bonds & Fixed Income

    Trademarks Of A Takeover Target

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

    The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.
  9. Investing

    How To Profit From M&A Announcements

    We look at four strategies that seek to profit from merger and acquisitions announcements.
  10. Stock Analysis

    The CVS Target Deal: A Healthy Union?

    The CVS Health and Target deal should be a win for both. Here's an analysis with a twist.

You May Also Like

Hot Definitions
  1. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  2. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  3. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  4. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  5. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  6. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
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!