What Is a Takeunder?

A takeunder is an offer to purchase or acquire a public company at a price per share that is less than its current market price. A takeunder is almost always unsolicited and generally occurs when the target company is in severe financial distress—or has some other major problem that threatens its long-term viability.

Typically, a takeunder only occurs when a company's stock is under downward pressure. If the trend continues, the takeunder price may soon be more than the company is worth; this is why shareholders may accept the offer (even though it is below the market value).

Key Takeaways

  • A takeunder is an offer to purchase or acquire a public company at a price per share that is less than its current market price.
  • A takeunder is almost always unsolicited and generally occurs when the target company is in severe financial distress.
  • Typically, a takeunder only occurs when a company's stock is under downward pressure; If the trend continues, the takeunder price may soon be more than the company is worth.

Understanding a Takeunder

A takeunder is a corporate buy-out that is similar to a takeover in most respects, except for the potential purchase price, since a conventional takeover target would usually receive a premium to its market price from a potential bidder. For example, a company that receives an offer to be acquired at $20 per share—when its shares are trading at $22—would be considered to be the subject of a takeunder offer. Note that in a takeunder situation, the offer is unlikely to be at a very large discount to the current market price, since the target company's shareholders would be quite unlikely to tender their shares if the offer is substantially below the current market price. However, the acquiring company may be aware of negative circumstances that may potentially impact the target company (or is already underway) that is not known to the market.

Existing shareholders can sell their shares at the (higher) market price, rather than the takeunder price.

The target company may reject a takeunder attempt outright as a low-ball offer, but it may give the offer due consideration if it is faced with insurmountable challenges. This may include dire financial straits, steep erosion in market share, legal challenges, and so on. In such cases, if the company believes that its chances of survival are much better if it is acquired rather than continuing as a stand-alone entity, it may recommend to its shareholders to accept the takeunder offer.

In most cases, the potential for a takeunder scenario arises when an entity is considered no longer viable. Although a management team can put on a good face, and even secure some speculative funding, for all intents and purposes, an acquisition is the last best option.