Generally/Definitions
Target Company
What is a company chosen as an attractive merger or acquisition option by a potential acquirer?
Components of a friendly take over
Premium per share, public offer of cash or stock, shareholder approval, regulatory approval
A no-shop provision
What is a target company that declines to solicit other bids or cooperate with/provide information to a competing bidder?
An advantage concerning the involvement of both parties
The involvement of both parties ensures better design of the deal and value delivery to the participating parties
Corporate action in which a company makes an offer to purchase another company
What is a takeover bid?
Takeover premium
What are target companies that are often acquired at a price that is greater than their fair market value?
A break-up fee
What is a target company that must pay a large fee to the favored bidder if a competing bidder acquires the target?
An advantage concerning price per share
The price per share in a friendly takeover transaction is often higher than the current market price
Friendly takeover
What is the acquisition of a target company by an acquiring company, with the approval of the management and board of directors?
Public offer of cash or stock
What is an offer made by a bidding company given to the board of directors to a target company for approval?
An expense reimbursement
What is a target company that must pay all or some of the favored bidder’s expenses if a competing bidder acquires the target?
An advantage relating to costs and company valuation
The target company does not incur costs or erase its value due to employing defense mechanisms to prevent a hostile takeover
A poison pill strategy
What is a defense strategy used by a corporation to appear less attractive to a potential acquirer
Elements of shareholder approval
What is a simple majority vote or 50% vote by shareholders with voting rights?
Some companies include supermajority provisions in their corporate charters that require a larger percentage of shareholders to approve the transaction
Asset lock-up
What is when a favored bidder has the option of purchasing specified assets of the target company if another bidder secures control?
A disadvantage relating to COIs
Potential COI for the target company’s management, who may sometimes favor a transaction due to being offered employment or other benefits by the acquiring company.
A friendly takeover that occurred in 2018 by a drug store chain
CVS acquired Aetna in a friendly takeover for $69 billion in cash and stock.
Regulatory approval
Following shareholder approval, the deal is still subject to the approval of the regulatory body. Government regulators may not approve a friendly takeover if the deal violates certain competition laws such as antitrust or anti-monopoly laws
Benefits of using Control Methods in a Friendly Takeover
Protects a favored bidder; can induce a bidding contest; maximizes shareholder profit
A disadvantage relating to approval of the takeover
What is shareholder approval?