What is a Takeover?

A takeover occurs when one company acquires control of another company, either through purchasing a majority stake or merging operations. Takeovers can be friendly (with agreement from both parties) or hostile (without the target company’s consent).

Takeovers are common in corporate mergers and acquisitions (M&A) and can lead to significant changes in company ownership, management, and strategy.

Types of Takeovers

1. Friendly Takeover

• The acquiring company negotiates with the target company’s board.
• Usually results in mutual benefits, such as growth opportunities.
• Example: Disney’s acquisition of Pixar in 2006.

2. Hostile Takeover

• The acquiring company bypasses management and directly approaches shareholders.
• Often involves aggressive strategies, like a tender offer (buying shares at a premium) or a proxy fight (convincing shareholders to replace the board).
• Example: Kraft’s hostile takeover of Cadbury in 2010.

3. Reverse Takeover (RTO)

• A private company acquires a publicly traded company to gain a stock exchange listing without an initial public offering (IPO).
• Example: Burger King’s reverse takeover by Justice Holdings in 2012.

4. Management Buyout (MBO)

• The existing management team buys out the company from shareholders, making it private.
• Often funded by private equity or loans.

5. Bailout Takeover

• A financially struggling company is acquired to rescue it from insolvency.
• Example: JP Morgan’s takeover of Bear Stearns during the 2008 financial crisis.

Why Companies Pursue Takeovers

• Market Expansion – Entering new markets or industries.
• Cost Synergies – Reducing costs through shared resources.
• Increased Market Share – Gaining a competitive edge.
• Access to New Technology – Acquiring innovative products or patents.
• Diversification – Reducing risk by expanding product lines.

Risks of a Takeover

• Cultural Clashes – Differences in corporate culture can affect operations.
• High Acquisition Costs – Overpaying for the target company can reduce profitability.
• Regulatory Challenges – Government authorities may block takeovers due to antitrust concerns.
• Integration Issues – Merging operations can lead to inefficiencies and disruptions.

Takeover vs. Merger

Feature	Takeover	Merger
Control	One company dominates the other	Companies combine as equals
Negotiation	Can be hostile or friendly	Usually agreed upon by both parties
Outcome	The target company may lose independence	A new entity is often formed
Example	Facebook’s takeover of Instagram	Exxon and Mobil merger

FAQs

What is a takeover?

A takeover is when one company acquires another by purchasing a controlling stake.

What is the difference between a friendly and hostile takeover?

A friendly takeover is agreed upon by both companies, while a hostile takeover occurs without the target company’s consent.

How do hostile takeovers happen?

Hostile takeovers occur when an acquiring company buys shares directly from shareholders or tries to replace the board to gain control.

Are takeovers legal?

Yes, but they must comply with corporate laws and antitrust regulations.

Why do companies resist takeovers?

Companies resist takeovers to protect their independence, employees, and business strategy.

What is a reverse takeover?

A reverse takeover happens when a private company acquires a public company to gain a stock market listing.

Can takeovers fail?

Yes, takeovers can fail due to regulatory issues, financing problems, or shareholder opposition.

Do takeovers benefit shareholders?

Shareholders of the target company often benefit because the acquiring company pays a premium for shares.

How do governments regulate takeovers?

Regulatory bodies like the U.S. SEC, UK’s CMA, and EU Competition Commission oversee takeovers to prevent monopolies.

What is the impact of a takeover on employees?

Takeovers can lead to job cuts, management changes, or cultural shifts, depending on the integration strategy.