What Is a Godfather Offer?
A Godfather offer is an irrefutable takeover bid made to a target company by an acquirer. Typically, the acquisition price's premium is extremely generous compared to the prevailing market price, making it difficult for the recipient’s management team to reject it without angering shareholders and being accused of breaching its fiduciary duty.
A Godfather offer is named after Francis Ford Coppola’s popular movie of the same title and, more specifically, relates to the film’s famous line, "make him an offer he can't refuse." This line has gone on to become one of the most celebrated quotations in cinema.
- A Godfather offer is an irrefutable takeover bid made to a target company by an acquirer.
- Typically, the acquisition price's premium is extremely generous, making it difficult for the recipient’s reluctant management team to reject it.
- If the bid is refused, shareholders may initiate lawsuits or other forms of revolt against the target company’s board for not performing its fiduciary duty.
How a Godfather Offer Works
In essence, the idea of a Godfather offer isn't so much an offer as a sly, yet heavy-handed demand: do as I say, or else.
Of course, the acquiring company isn’t insinuating here that it will kill somebody if it doesn’t get its way, like Marlon Brando’s character Don Corleone did in the movie. However, it is being aggressive and putting a targeted company that doesn’t want to be purchased in an awkward, vulnerable position.
When a tender offer is made publicly inviting shareholders to sell their shares at a very favorable price, the target’s board of directors (B of D) might have trouble voicing its resistance. Put it this way: If management doesn’t want to sell and snubs the bid, shareholders may initiate lawsuits or other forms of revolt against the target company for not performing its fiduciary duty of looking out for their best interests.
Most Godfather offers is a heavy-handed demand: do as I say, or else, cloaked in an offer.
A Godfather offer is even harder for the target company's management to reject when its stock price has been flat or declining for an extended period of time. In such scenarios, it is even more likely that long-time investors would jump at the opportunity to cash out at an elevated price.
Example of a Godfather Offer
Company A is a promising, up-and-coming developer of new, niche technologies. Its solutions could revolutionize how the world operates, leading some larger companies to sniff around and inquire about taking it over.
Company A’s management team privately rebuffs all proposals, claiming that it has no interest in selling up and handing over all its potential to another firm. That strategy helps to keep the predators at bay for a few months until one of them turns hostile.
Company C, an industry juggernaut with significant financial resources, eventually gets tired of company A board’s reluctance and responds by tabling a generous Godfather offer directly to its shareholders. A bid of $70 per share is lodged, representing a 75% premium on company A’s current market price.
Company A’s board is livid and maintains that it doesn’t want to sell at any cost, while the shareholders it’s elected to represent voice support for the deal and refuse to take no for an answer. Suddenly things turn messy. Disgruntled shareholders engage in a proxy fight, joining forces in an attempt to seize control and get the takeover voted for. They also threaten to sue senior management for failure to act in their best interests.