The difference between a merger and a hostile takeover has to do with the manner in which two companies merge to become a single legal entity and the opinions of the corporate directors involved.

In a merger, two or more companies, usually of similar size, combine to go forward in business as a single company. This may be beneficial if both companies sell similar products and decide it will be better to work together than in competition, or if the businesses complement each other. One company, known as the surviving company, acquires the shares and assets of another with the approval of said company's directors and shareholders. The other ceases to exist as an independent legal entity. Shareholders in the disappearing company are given shares in the surviving company.

However, in a hostile takeover, the target company's directors do not agree with the acquiring company's directors. In such a case, the acquiring company can offer to pay target company shareholders for their shares in what is known as a tender offer. If enough shares are purchased, the acquiring company can then approve a merger or simply appoint its own directors and officers who run the target company as a subsidiary.

Hostile takeover can also be achieved by a proxy fight. The acquiring company obtains authorization from the target company's shareholders to represent their vote by proxy. With proxy authority, the acquiring company essentially becomes the majority shareholder of the target company, enabling it to approve the merger.

  1. 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 >>
  2. What happens to the shares of a company that has been the object of a hostile takeover?

    Learn about the effect on the share price of companies that are targets of hostile takeovers, which are tactics used by famed ... Read Answer >>
  3. How can a company buy back shares to fend off a hostile takeover?

    Learn about why a business might use a stock buyback to thwart a hostile takeover attempt by reducing its total assets and ... Read Answer >>
  4. How is a tender offer used by an individual, group or company seeking to purchase ...

    Learn how tender offers are used in takeover attempts, and understand the difference between a hostile takeover and a friendly ... Read Answer >>
  5. How effective is a poison pill defense against a hostile takeover?

    Learn about the different types of poison pill strategies that target companies use to prevent hostile takeovers, and understand ... Read Answer >>
  6. Does an all-stock or all-cash M&A deal affect the equity of the buying company?

    Mergers and acquisitions are becoming increasingly popular forms of corporate restructuring and can affect the buying company's ... Read Answer >>
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  1. Hostile Bid

    A specific type of takeover bid that is presented directly to ...
  2. Takeover Bid

    A takeover bid is a corporate action in which an acquiring company ...
  3. Busted Takeover

    A highly leveraged corporate buyout that is contingent upon the ...
  4. Takeover

    A corporate action where an acquiring company makes a bid for ...
  5. Proxy Fight

    When a group of shareholders are persuaded to join forces and ...
  6. Premium Raid

    An attempt by a corporate raider or acquiring company to procure ...
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