What Is a Friendly Takeover
A friendly takeover is the act of target company's management and board of directors agreeing to be absorbed by an acquiring company. Such action 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.
--A friendly takeover is a scenario where 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).
Breaking Down Friendly Takeover
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.
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 contemplation, ultimately determining whether or not a deal is approved. For this reason, the acquiring company usually strives to extend fair buyout terms, where it offers to buy shares at a premium to the current market price. The size of this premium, given the company's growth prospects, will govern the overall support for the buyout, within the target company.
Example: Friendly Takeover of Aetna By CVS
In December 2017, drugstore chain CVS Health Corp. (CVS) announced it would acquire health insurer Aetna Inc. (AET) for $69 billion in cash and stock. Both companies' shareholders approved the merger on March 13, 2018, bringing the combined organization one step closer to finalizing a deal that would ultimately transform the healthcare industry.
On October 10, 2018, the DOJ approved the merger, on the condition that Aetna made good on its plans to sell its Medicare Part D business to WellCare Health Plans. And on November 30 of that same year, CVS and Aetna completed their merger, thus combining a national retail pharmacy chain with a major health insurance provider.
By transforming many CVS storefronts into community medical hubs for primary care and basic procedures, the two companies hope to reign in health care costs, while helping patients comply with prescribed drug regimens, in order to reduce hospitalizations.
This friendly takeover came at a time when healthcare companies and providers, including insurers, drugstores, doctors and hospitals were coming under pressure to lower costs. As of 2016, U.S. health spending equaled 17.9% of the nation’s gross domestic product and is expected to reach approximately 19.7% by 2026. In addition, rumors of Amazon’s (AMZN) potential entry into the pharmacy industry likely spurred CVS’s bid, as Amazon already sells over-the-counter drugs, including an exclusive line of Perrigo (PRGO) products.
[Important: Many takeovers that are initially considered friendly may ultimately turn hostile, when a company’s board and/or its shareholders reject the buyout terms, then the acquiring company purchases enough of the target company's stock to gain control, with board approval.]