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.
- 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