Uncovering company buyouts and hostile takeovers

Julie Brownlee, Fsp Invest, 07 Sep. 2015

Tags: takeovers, company takeovers, hostile takeovers, company buyouts, how do company takeovers work

Listed companies don’t always last the test of time. There are many reasons for this.

Some companies go bust. Some decide to delist and become private companies again. And other companies takeover other companies, bringing their life to an end.

So what happens with company takeovers? And what are hostile takeovers?

Read on to find out more…

What happens during company takeovers?

In most instances, company takeovers happen with the blessing of the board of directors.

Once a company decides it wants to buy out another one, it usually makes an offer for all the shares of the target company. It then asks the board of directors to recommend this offer to its shareholders.

If the directors of the target company agree to this and the shareholders also agree, the takeover goes through.

In some circumstances, the directors of a company may not believe the offer is good enough and it’s less than it should be. If this happens, they’re likely not to recommend the offer to the shareholders of the company.

If this is the case, the company wanting to buyout the target company could either raise its offer or walk away from the deal.

But it could also try to get the offer through a different way…

The ins and outs of hostile takeovers

Instead of going through the board of directors of the target company, the bidding company could instead approach the shareholders directly. In other words, the bidding company makes a direct offer to buy their shares.

If the company bidding for the target company can buy enough shares to give it a controlling stake in the target company, it is then in a position to force the remaining shareholders to sell their shares.

This means it can buyout the company as it initially planned, explain the experts at Money Week. This is a hostile takeover.

When this happens, the target company will likely try to defend itself by promising shareholders a better time ahead by changing its strategy.

Hostile takeovers are much rarer than ‘normal’ takeovers, but they do happen.

So there you have it. Uncovering company buyouts and hostile takeovers.

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