Being about 1 company buying another, mergers & acquisitions usually result in the formation of a larger entity. Mergers (or takeovers) are usually divided into friendly ones, backflip ones & hostile ones. In this article, we will look into the main kinds of takeovers/mergers & examine their differences.
Thinking about undertaking a takeover? Signing an M&A deal is something that you’ve never done before? IQ Decision UK can help with both.
Just as its name suggest, this kind of takeover can only take place if the stakeholders & directors of a company that is being acquired approve a takeover proposal.
The whole process is divided into several stages. First, a bidder applies to the B of D of the company that is being acquired with their proposal. After looking into the proposal, the B of D decides to submit the matter for consideration of the shareholders. As a result, the company’s takeover takes place in a ‘friendly’ way
It is worth noting that most small-sized entities are absorbed in such a way. This happens simply because members of its B of D are already the shareholders. However, if the proposal is refused or a bidder shows excessive assertiveness, it may result in a somewhat negative scenario.
Choosing the most suitable type of takeover is a problem for you? Looking for legal advice on M&A transactions? Our lawyers are always on standby to give you all the help that you need.
In this case, the company that is being acquired refuses the proposal. It often happens in situations when members of the B of D do not hold a majority stake. Sometimes, it can occur because a bidder is too aggressive and come up with a proposal immediately after stating their intention to purchase it. That can be interpreted as exerting excessive pressure on the board of directors and preventing its members from executing their duties properly.
Bidders can be made more cooperative though. One of the possible ways of doing that consists in getting them to listen to the B of D or shareholders. In this case, both parties will have a chance to conclude a mutually beneficial deal.
Takeovers themselves can be undertaken in several different ways:
- Tender offer. A bidder makes an official offer to pay for each share an amount that is higher than the price offered on the securities market.
- Proxy fight. Offensive tactics whereby a participant tries to persuade the stakeholders to replace all members of the B of D with more cooperative ones.
- Creeping offer. A bidder may secretly purchase a sufficient portion of stakes to replace the company’s B of D.
Thinking about acquiring a company? Need legal support at all stages of the acquisition process? Our highly experienced lawyers can give you a hand with that.
Dangers & Risks of Hostile M&As
Basically, hostile M&As pose a greater danger to participants than friendly ones. Why? Because the bidder may encounter some difficulties in conducting legal audits if the company they wish to acquire is resisting. Why is a legal audit so important? Because it enables a bidder to verify the company’s operational & financial status.
Also, if a bidder needs to take out a loan,they might face some serious problems getting one. That is because banks may be very hesitant to extend a credit to a client who is unable to perform a legal audit of proper quality.
Takeovers are all about private companies acquiring public companies. In this way, a private company can continue to effectively stay afloat. Reverse takeovers can be considered a good alternative to IPO.
This type of takeovers occurs when an acquiring entity ends up becoming the subsidiary of a company that is being acquired.
Ways in Which Companies Can Protect Themselves Against M&As
The general strategy may be to reduce the company’s attractiveness by intentionally increasing debts, reducing stocks, and selling or buying certain assets. Other methods include:
- amending the company's statutory documents
- issuing shares entitling their holders to different voting rights
- taking over smaller companies to increase the price
- filing lawsuits
Considering signing an M&A deal? Need help with undertaking a takeover? IQ Decision UK can provide you with legal advice concerning M&As and consult you on all takeover-related matters.