Takeover Definition

A takeover occurs when one company acquires control or ownership of another company by purchasing a significant number of its shares or assets, often leading to a change in management and operations.

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Takeover Definition

The definition of takeover in the business sphere is when one company assumes control of another company. The company assuming control is called the “acquirer,” and it takes control of the “target” company. 

Types of Takeovers

There are several varieties of takeover methods. 

Voluntary Takeovers

When a takeover is voluntary, the target company’s management approves the acquisition. The two companies’ boards may then work together to agree on terms.

Hostile Takeover

Alternatively, a company may attempt a hostile takeover, meaning it is unwelcomed by the target company. Acquiring companies go about this in several ways.

  • Proxy fight — the acquiring company approaches the target’s shareholders directly and tries to persuade them to replace the target company’s management with individuals who will approve the takeover.
  • Tender offer — the acquiring company makes a public offer at a fixed price per share that is above the current stock market price.
  • Creeping offer — the company attempting a hostile takeover buys up stock on the open market until it has enough to effect a management change. 

In response, the target company may use various defensive strategies to resist these measures.

Reverse Takeover

A reverse takeover involves a private company buying up enough shares of a public one to acquire it. The acquiring company then reorganizes so that the public company absorbs the private company. This allows the private company to go public without the logistical and regulatory challenges of an initial public offering.

Backflip Takeover

In a backflip takeover, the acquiring company takes over another business and then reorganizes so that it becomes the subsidiary of the target company. This makes sense in situations where the target company has better brand recognition or where doing so provides other market benefits.

Other Considerations

Generally, a takeover involves a company purchasing a controlling share of stock in the target company. But an acquiring company also can use debt to finance the takeover, which is referred to as a leveraged buyout. 

It’s also important to understand the difference between a takeover and a merger. In a merger, the board of directors and the shareholders of two companies vote to approve merging into one new legal entity. The merged entity usually assumes a new name. For public companies, the combined companies then proceed under a new stock symbol.

Takeover Benefits

A takeover has advantages in many situations. For example, the target company may increase the acquiring company’s value by adding new technology, distribution channels, or brand lines. Acquiring companies also sometimes use a takeover to easily enter a new market. 

In some cases, one company will take over its biggest competitor to eliminate competition. 

Takeover Disadvantages

What are a takeover’s downsides? Often after a takeover, the acquiring company will cut jobs to reduce redundant positions. The two companies also may not integrate well in terms of corporate culture or management style. 

When a takeover eliminates competition in a particular industry, this hurts consumers and, potentially, job-seekers. 

Takeover Examples

The most recent example of a takeover is Elon Musk’s pending acquisition of Twitter. Mr. Musk bought up Twitter’s stock to become its largest shareholder. Twitter initially used a defensive technique known as a “poison pill” (a mechanism to make a takeover less palatable by reducing the value of the stock he had purchased) to prevent Mr. Musk from buying more shares and effecting a hostile takeover. But ultimately, Twitter’s board voted to approve his tender offer. When the deal goes through, Mr. Musk will make Twitter a private company.

Summary

A takeover’s business definition is when one company assumes control of another company, typically by purchasing a controlling share of the target company’s stock. 

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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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