What Is a Friendly Takeover?
A friendly takeover is the act of a target company's management and board of directors agreeing to be absorbed by an acquiring company.
- A friendly takeover is a scenario in which a target company is willingly acquired by another company.
- Friendly takeovers are subject to approval by the target company's shareholders, who generally greenlight deals only if they believe the price per share offer is reasonable.
- Friendly takeover deals must achieve regulatory approval by the U.S. Department of Justice (DOJ).
- Friendly takeovers stand in stark contrast to hostile takeovers, where the company being acquired does not approve of the buyout and often fights against the acquisition.
Understanding a Friendly Takeover
A friendly takeover is typically subject to approval by both the target company’s shareholders and the U.S. Department of Justice (DOJ). In situations where the DOJ fails to grant approval for a friendly takeover, it's typically because the deal violates antitrust (anti-monopoly) laws.
In a friendly takeover, a public offer of stock or cash is made by the acquiring firm. The board of the target firm will publicly approve the buyout terms, which subsequently must be greenlit by shareholders and regulators, in order to continue moving forward. Friendly takeovers stand in stark contrast to hostile takeovers, where the company being acquired does not approve of the buyout and often fights against the acquisition.
Takeovers initially seen as friendly may turn hostile when a target company’s board and shareholders reject the buyout terms.
In a majority of cases, if the board approves a buyout offer from an acquiring firm, the shareholders follow suit, by likewise voting for the deal’s passage. In most prospective friendly takeovers, the price per share that's being offered is the chief consideration, ultimately determining whether or not a deal is approved.
For this reason, the acquiring company usually seeks to offer fair buyout terms, such as buying shares at a premium to the current market price. The size of this premium, given the company's growth prospects, will determine the target company's support for the buyout.
Example of a Friendly Takeover
Deutsche Wohnen (DW) and Vonovia are two of Germany's most important real estate companies and rivals of each other. Vonovia has been seeking to purchase DW for many years now. In 2015, Vonovia made an unsolicited bid for DW in the amount of 14 billion euros in a hostile takeover. DW was able to successfully stop the takeover.
In 2021, Vonovia came back with another offer to purchase DW for 18 billion euros; a price DW believed was too low and undervalued the company. Throughout 2021, Vonovia sought to revise the deal and DW had been open to different valuations from Vonovia.
DW finally agreed to Vonovia's offer of 19 billion euros in a cash takeover and the merger will move forward in what has been referred to as a "friendly return of a business combination." This was 2021's largest M&A deal in Europe and created a company with a 90 billion euro asset value with control over more than 500,000 real estate properties.
What Is the Difference Between a Friendly Takeover and a Hostile Takeover?
In a friendly takeover, the management and shareholders of both companies are in agreement on the deal and facilitate the process of both companies uniting. When the management of the company being targeted for purchase is not in agreement with the deal and does not want to be bought yet the acquirer still moves forward by appealing to the shareholders directly and bypassing the board, that is a hostile takeover.
What Are the Types of Takeover?
There are a few different types of takeovers of a company in the business world. These are friendly takeovers, hostile takeovers, reverse takeovers, and backflip takeovers. A friendly takeover occurs when everyone is in agreement. A hostile takeover occurs when the acquirer appeals directly to a company's shareholders, bypassing the management team that does not want to be taken over. A reverse takeover is when a private company buys a public company. A backflip takeover is when the acquiring company becomes the subsidiary of the company being bought.
What Is the Advantage of a Friendly Takeover?
The advantages of a friendly takeover are a better value deal, all parties working towards a common goal that is best for all parties involved, the target company not negatively being impacted by using tactics to fight off a bid, and the design of a more unified company post takeover.