What is a 'Target Firm'

A target firm is a company which is the subject of a merger or acquisition attempt. A takeover attempt can take on many different flavors, depending on the attitude of the target firm toward the acquirer. If management and shareholders are in favor of the transaction, then a friendly and orderly transaction can take place. When there is opposition to the transaction, the target firm may attempt a variety of hostile actions hoping to thwart the takeover attempt.

BREAKING DOWN 'Target Firm'

Target firms are often acquired at a price in excess of their fair market value. This is rational when the acquiring firm perceives an additional strategic value to the acquisition, such as greater economies of scale. These economies do not always materialize however, since there can be additional hidden costs associated with the integration of two firms.

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RELATED FAQS
  1. Under what circumstances might a company decide to do a hostile takeover?

    Learn about why companies use a hostile takeover to gain control of another company, and understand the different methods ... Read Answer >>
  2. 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 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 Answer >>
  4. What is the difference between a merger and a takeover?

    In a general sense, mergers and takeovers (or acquisitions) are very similar corporate actions - they combine two previously ... Read Answer >>
  5. What's the difference between a merger and a hostile takeover?

    Understand the difference between a merger and a hostile takeover, including the different ways one company can acquire another, ... Read Answer >>
  6. What is the difference between a hostile takeover and a friendly takeover?

    Learn about the difference between a hostile takeover and a friendly takeover, and understand how proxy fights and tender ... Read Answer >>
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