My Goals with this Blog...

Are to document my experiences with various income streams and programs in my quest to becoming a full time freelancer working from home. I plan to list my current 'eggs' and to post the things that have and haven't worked for me.

The Hostile Takeover: Saying

Posted by tehblogging trolless | 10:47 PM

Mergers and acquisitions have been around for as long as businesses have existed. Gaining an advantage over the competition sometimes might mean buying it. Even when elimination of the competition by acquisition is not the goal, expansion into new markets might be best accomplished by buying or merging with an existing company that already has a foothold in the target market.

Corporations can join forces in many ways including joint ventures, mutually agreed upon merger or the acquisition of one company by another. The last option usually results in the acquired company's assets and operations, including its debt structure and employees, being taken over. Mergers are not always accomplished through friendly discussions leading to a combining of the two business entities.

Mergers and Acquisitions

A merger begins with two companies coming together to form a new company that combines the assets and employees of the two original entities. Mergers are usually the result of an agreement negotiated between the directors of the two companies.

Acquisitions take place with one company buying or obtaining a controlling interest in another company. The end result of an acquisition is that the acquired company becomes part of the acquiring company and ceases to exist. The acquiring company gets full control over the assets, liabilities and employees of the acquired company. An acquisition can, in a similar manner as a merger, be accomplished through the mutual agreement of the directors of both companies.

Hostile Takeovers

Corporate managers are responsible to their shareholders, the actual owners of the company, to maximize the value of the interest of the owners. In other words, the management team of a company is there to do what is in the best interest of the company and its owners. The management of a company might decide that an offer to purchase its business is not in the company's best interest. This would end the acquisition of a privately held company but not of one that is publicly traded.

A hostile takeover occurs when the corporation attempts to force an acquisition by gaining control over enough shares of the company it wishes to acquire to be able to control the vote of the target company's shares. Shareholders elect the people who sit on the board of directors, and the board of directors votes to approve or disapprove a sale of the company. By purchasing a company's publicly traded shares of stock, the buyer seeks to acquire enough votes to control the board of directors.

Reasons Behind a Hostile Takeover

Acquiring another company might give the buyer access to patents and other intellectual property that it might not be able to obtain otherwise. An acquisition also provides the buyer with the acquired company's name, customers and distribution network. Depending upon the circumstances, a hostile takeover can give a company instant access to new products and markets.

Defending Against Hostile Takeovers

With “golden parachutes,” high-level managers have contracts giving them huge bonuses and compensation packages in the event the company is acquired. The purpose of a golden parachute is to make the company less attractive to a buyer in a hostile takeover.

Another protection is a staggered board of directors. Instead of replacing the entire board at the same time, many corporations stagger the terms of directors to make a takeover drag on for a longer period.