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04 Takeover.Pdf 04 Types of takeovers Legal takeovers Business takeovers Reverse takeovers Back flip takeovers Strategies to thwart takeovers Common types of poison pills Squeeze out Takeover is another name of acquisition A takeover occurs when an acquiring firm takes over control of the target company. The acquirer may do this either with or without the consent of the shareholders of the target company. Take over happen by the purchase of shares from shareholders at a specified price. By purchasing or controlling over 50% of the shares, the purchaser or acquirer gains control of the target company. Legal takeover Enactment Friendly Hostile Bailout Business Horizontal Vertical Conglomerate Reverse Back flip Enactment – Takeovers are governed by specific laws. There are times when a company is legally forced to takeover another company or a takeover happens by law. The nationalization of banks in India in 1969 is a classic example of a legal takeover. Friendly takeover is one in which a target company’s management and board of directors agree to a merger or acquisition by another company. Hostile Takeover - The acquisition of the company targeted by the acquiring company occurs not by the two companies coming to an agreement , but by the acquiring company going directly to the targeted company’s shareholders or fighting to replace management in order to get the acquisition approved by or by buying the majority of the target company’s share from individual shareholders or the market. Bailout Takeover - This involves the takeover of a financially sick company by a financially rich company as per the provisions of the Sick Industrial Companies (Special Provisions) Act (1985). The objective of this takeover is to bail out the sick unit from losses. Horizontal takeover- of one company by another company in the same industry. The main purpose behind this kind of takeover is achieving the economies of scale of increasing the market share. Example takeover of Hutch by Vodafone. Vertical takeover- Takeover by one company with its suppliers or customers. The former is known as Backward integration and later is known as forward integration- takeover of Sona Steering Ltd by Maruti Udyog Ltd. is a backward takeover. The main purpose behind this kind of takeover is reduction in costs. Conglomerate takeover- Takeover of one company operating in totally different industries. The main purpose of this kind of takeover is diversification. Reverse takeover- A reverse takeover is a type of takeover where private company acquires a public company. This is usually done at the instigation of the larger, private company, the purpose being for the private company to efficiently float itself while avoiding some of the expense and time involved in a conventional IPO Back flip takeovers-A back flip takeover is any sort of takeover in which the acquiring company turns itself into a subsidiary of the purchased company. Management of target companies often employ several strategies to thwart takeovers. Back end - A merger following a tender offer in a two-step merger structure in which a buyer acquire all the target company’s stock following the merger. Bankmail- In a bankmail engagement, the bank of a target firm refuses financing options to firms with takeover bids. Thwarting merger acquisition through financial restrictions Crown Jewel Defense - In business when a company is threatened with takeover, the crown jewel defense is a strategy in which the target company sells off its most attractive assets to a friendly third party or spin off the valuable assets in a separate entity Flip- in - The flip-in is one of the five main types of poison pill defenses against corporate takeovers. The flip-in is a provision in the target company’s corporate character or bylaws. Flip over- A flip-over is another of the five types of poison pills in which current shareholders of a targeted firm will have the option to purchase discounted stock after the potential takeover. Golden Parachute - A golden parachute has been defined as an agreement between a company and an employee (usually a senior executive) specifying that the employee will receive certain significant benefits if employment is terminated. Green mail -Green mail or greenmailing is the practice of purchasing enough shares in a firm to threaten a takeover, thereby forcing the target firm to buy those shares back at a premium in order to suspend the takeover. Jonestown Defense – The Jonestown defense is an extreme corporation defense against hostile takeovers. In this strategy, the target firm engages in tactics that might threaten the firm’s existence to thwart in imposing acquirer’s bids. Killer bees – Killer bees are firms or individuals that are employed by a target company to fend off a takeover bid. They aid by utilizing various anti- takeover strategies thereby making the target company economically unattractive and acquisition more costly. Knight- In takeovers there are four types of knights- the white knight, the grey knight, the yellow knight and the black knight. White knight- In business, a white knight, or “friendly investor”, may be a corporation or a person that intends to help another firm. A white knight can help the target firm by offering terms for a friendly takeover. Grey knight- A grey knight is an acquiring company that enters a bid for a hostile takeover in addition to the target firm and first bidder Yellow knight- A yellow knight is a company that initiated a hostile takeover, but changes tactics during the process to negotiate on more agreeable terms. Black knight- Black knights attempt hostile takeovers of target firms. Leveraged recapitalization- In corporate finance , a leveraged recapitalization is a change of the capital structure of a company- a substitution of equity for debt. Leveraged recapitalization are used by privately held companies as a means of refinancing, generally to provide cash to the share holders while not requiring a total sale of the company. Lobster trap- A lobster trap, in corporate finance, is an anti-takeover strategy used by target firms. The term derives from the fact that Lobster traps are designed to catch large lobster but allow small lobsters to escape. Lock-up provision- Lock-up provision is a term used in corporate finance which refers to the option granted by a seller to a buyer to purchase a target company’s stock as a prelude to a takeover. Nancy-Reagan Defense- The Nancy Reagan defense is a tactic in corporate finance used to counter a takeover or merger bidder who has made a formal bid to shareholders to buy their shares. Non-voting stock- Non voting stock is a stock that provides the shareholder very little or no vote on corporate matters, such as election of the board of directors or mergers. Pac-Man Defense- The Pac –Man Defense is a defensive option to stave off a hostile takeover in which a company that is threatened with a hostile takeover’ turns the tables” by attempting to acquire its would-be buyer. Pension Parachute- A pension parachute is a form of poison pill that prevents the raiding firm of hostile takeover from utilizing the pension assets to finance the acquisition. People Pill- As a variation of the poison pill defense, the people pill is an anti-takeover defense under which the current management team of the target company threatens to quit en masses in the event of a successful hostile takeover. Poison pill – A shareholder rights plan, colloquially known as :poison pill”, is a type of defensive tactic used by a corporation’s board of directors against a takeover. The poison pill was invented by mergers and acquisitions lawyer Martin Lipton of Wachtell, Lipton, Rosen & Katz in 1982, as a response to tender- based hostile takeovers. Preferred stock plan; Flip over rights plan; Ownership flip Squeeze out is a term referring to the compulsory acquisitions of the stakes of a small group of shareholders from a joint stock company by means of cash compensation. .
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