Friendly takeover
Friendly takeover is the transaction of overtaking the control of purchased company by other company (purchaser) with the full (mutual) agreement of the board of directors and employees of company that is going to be overtaken. The management teams of the acquiring and target companies negotiate the terms of the deal—covering issues such as how shares in the new company will be divided—and then both companies' boards of directors and shareholders approve it.
In a private company, because the shareholders and the board are usually the same people or closely connected with one another, private acquisitions are usually friendly. If the shareholders agree to sell the company, then the board is usually of the same mind or sufficiently under the orders of the shareholders to cooperate with the bidder.
Process of friendly takeover
The process of friendly takeover is composed of following steps:
- the preparation of the purchasing program,
- signing the preliminary terms,
- announcing the intention for purchase transaction and explaining the reasons,
- act of takeover connected with making the decisions about the make-up of new board of directors,
- working out the plan of industrial conversion,
- implementation of the new long-term policy related to new opportunities,
- evaluation of the takeover results.
See also:
Examples of Friendly takeover
- *In 2019, Japanese multinational conglomerate SoftBank Group announced its acquisition of U.S. telecom giant Sprint Corporation. The friendly takeover was valued at $26 billion and was approved by Sprint’s shareholders.
- *In 2011, pharmaceutical giant Pfizer acquired rival drugmaker Wyeth in a friendly takeover valued at $68 billion. The deal was approved by Wyeth’s board of directors and shareholders.
- *In 2015, British multinational conglomerate Unilever acquired U.S. consumer goods company Alberto-Culver in a friendly takeover valued at $3.7 billion. The deal was approved by Alberto-Culver’s board of directors and shareholders.
Advantages of Friendly takeover
A friendly takeover offers several advantages to both companies involved. These include:
- Reduced costs, as no hostile activity is required, such as expensive legal fees and time-consuming court proceedings.
- Improved goodwill and reputation, since no hostile takeover is involved and both companies are willing to mutually cooperate.
- The target company is likely to remain in the same business and keeping its identity, culture, employees and customers.
- The acquiring company can gain new resources and capabilities in the form of technology, brand, customers, market access, etc.
- The target company can benefit from the increased financial resources, better management and expertise of the acquiring company.
- The shareholders of the target company will typically get a premium on the share price.
Limitations of Friendly takeover
A friendly takeover has several limitations, such as:
- The acquiring company may not be able to gain enough control to make the necessary changes to the target company. This is because the target company's shareholders may not be willing to give up their voting rights or other rights associated with their shares.
- The process of friendly takeovers often requires significant negotiation between the two companies which can be time-consuming and costly.
- The acquiring company may not be able to get the same terms as they would in a hostile takeover, as the target company may not be as willing to accept the offer.
- The target company may be reluctant to accept the offer due to potential negative repercussions from employees, customers, and other stakeholders, as well as potential loss of reputation.
- The terms of the takeover may be disadvantageous to the target company, as the acquiring company may not be willing to provide the same benefits and protection that they would in a hostile takeover.
A friendly takeover can be achieved in several ways. These include:
- Mergers and acquisitions, which involve the transfer of ownership from one company to another, either through an acquisition of the target company's stock or assets, or through a combination of the two.
- Joint ventures, which involve an agreement between two or more companies to jointly develop and manage a new business.
- Strategic alliances, which involve the two companies working together to achieve their common goals, such as developing new products or entering new markets.
- Spin-offs, which involve the transfer of a part of one company's business to another.
In summary, a friendly takeover can be achieved through mergers and acquisitions, joint ventures, strategic alliances, and spin-offs. All of these approaches involve the transfer of ownership or part of a business from one company to another and require the mutual agreement of both companies involved.
| Friendly takeover — recommended articles |
| Phoenix company — Types of acquisition — Brown field investment — Emergence plan — Conglomerate diversification — Selling Group — Wholly owned subsidiary — Business format franchising — Management company |
References
- Ben-Amar, W., & Missonier-Piera, F. (2008). Earnings management by friendly takeover targets. International Journal of Managerial Finance, 4(3), 232-243.
- Caves, R. E. (1989). Mergers, takeovers, and economic efficiency: foresight vs. hindsight. International Journal of Industrial Organization, 7(1), 151-174.
- Morck, R., Shleifer, A., & Vishny, R. W. (1988). Characteristics of targets of hostile and friendly takeovers. In Corporate takeovers: Causes and consequences (p. 101-136). University of Chicago Press.
- Shankar G., Trends, Merger & Acquisition, approved by AICTE, New Delhi 2007-2008, p. 8
- Shleifer, A., Vishny, R., & Morck, R. (1987). Characteristics of hostile and friendly takeover targets. Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Weisbach, M. S. (1993). Corporate governance and hostile takeovers. Journal of Accounting and Economics, 16(1-3), 199-208.
Author: Piotr Lusiński
