A friendly takeover is where the target company agrees to the acquisition offer in a peaceful manner and in this case the takeover is subject to the approval of the shareholders of the target company as well as that of the regulators to check if the deal complies with the antitrust laws.
What is Friendly Takeover?
Friendly Takeover is a type of takeover that is very friendly in nature as the management of the acquired company, as well as management of the target company, agrees to the terms and conditions of the takeoverTakeoverA takeover is a transaction where the bidder company acquires the target company with or without the management's mutual agreement. Typically, a larger company expresses an interest to acquire a smaller company. Takeovers are frequent events in the current competitive business world disguised as friendly mergers., and takeover is done without any difficulty, arguments, and fights. An acquirer doesn’t have to do any plotting or make any strategies against the target company in order to acquire the same.
Therefore in literal terms, we could say that when the takeover is with the consent of the board of directors and shareholders of the target company, then the takeover is called a “Friendly Takeover.”
Example #1 – Friendly Takeover Examples
Let’s assume there is a company called XYZ who is interested in buying a majority in company ABC. Company XYZ makes a plan to approach company ABC’s board of directors with a potential bid. Company ABC’s board of directors would then discuss the bid or votes on the bid. If the company ABC management evaluates that the deal is beneficial to the company, they will accept the offer and recommend the deal to shareholders as well. After all the approvals from a board of directors, shareholders, and other regulatory authorities involved, the deal will be finalized.
Example #2 – Johnson & Johnson Takeover of Crucell
Pharmaceutical and health care giant Johnson & Johnson announced the successful completion of a Friendly Takeover of Dutch vaccine maker Crucell which employs 1,300 people, produced more than 115 million doses of vaccine in 2009 for distribution in about 100 countries, for about 1.75 billion euros ($2.37 billion). Johnson & Johnson and Crucell jointly announced that Johnson & Johnson has completed the tender offer for Crucell. Johnson & Johnson, which employs 114,000 people, has said it intends to retain Crucell’s management and staff and to keep the headquarters at Leiden in the western Netherlands. Johnson & Johnson now owns more than 95 percent of Crucell’s capital. The European Commission authorized the takeover seeing no competition problems.
Example #3 – Facebook & WhatsApp Deal
Facebook takeover to WhatsApp is another big example of a friendly takeover where Facebook bought WhatsApp in $19 Billion.
Why Friendly Takeover Occur?
The Friendly Takeover has many benefits that it offers to the target company. When a target company sees that the benefit they will have after this takeover is enough to trade with their current business, they go for or agrees to the deal that an acquirer offer. The biggest benefit that is being offered to the target company by this takeover is the price per share, which is often better than the current market price.
- The target company might receive other benefits as well in addition to the better per share price that includes better opportunities to expand the business, to explore the different markets, expansion in different product linesProduct LinesProduct Line refers to the collection of related products that are marketed under a single brand, which may be the flagship brand for the concerned company. Typically, companies extend their product offerings by adding new variants to the existing products with the expectation that the existing consumers will buy products from the brands that they are already purchasing., etc.
- It is very important to note that there is always a country’s regulatory body involved in takeover whose approval is mandatory for the takeover to happen.
- In case the regulatory body doesn’t approve the takeover terms or feel that the takeover would be harmful in any circumstances, it would not happen even after both the acquirer and the target company is in agreement to the takeover.
There are many advantages associated with Friendly Takeover:
- In this takeover, both the acquirer and target company takes part in designing the structure of the deal to their mutual satisfaction.
- In this takeover, the target company doesn’t have to face or experience any annoying disputes or losses that may occur because of other types of takeovers, as in the case of a Hostile takeover.
- Generally, a better price per share is another advantage of a friendly takeover.
Friendly Takeover vs. Hostile Takeover
Unlike a Friendly Takeover, In a Hostile takeoverIn A Hostile TakeoverA hostile takeover is a type of acquisition of a target company by an acquiring company in which the target company's management is not in favour of the acquisition but the bidder still uses other channels to acquire the company, such as acquiring the company through tender offer by directly making an offer to the public to buy the shares of the target company at a pre-specified price that is higher than the prevailing market prices., the target company doesn’t want the acquirer to acquire it.
When the takeover is without the consent of the board of directorsBoard Of DirectorsBoard of Directors (BOD) refers to a corporate body comprising a group of elected people who represent the interest of a company’s stockholders. The board forms the top layer of the hierarchy and focuses on ensuring that the company efficiently achieves its goals. of the target company. It is hostile on the board of the directors of the target company; then, the takeover is called a “Hostile Takeover.”
This type of takeover, the acquirer will directly go to the shareholders of the company to acquire the shares of the target company without letting the management of the target company know about such actions.
An acquirer may proceed with the hostile takeover using any of the following strategies:
- Tender Offer: In a tender offerTender OfferA tender offer is a public proposal by an investor to all the current shareholders to purchase their shares. Such offers can be executed without the permission of the firm’s Board of Directors and the acquirer can coordinate with the shareholders for taking over the firm., the acquirer company makes a public offer to purchase shares from the shareholders of the target company at a price more than the current market price.
- Proxy Fight: In proxy fightsProxy FightsThe proxy fight occurs when all of a company's shareholders vote to remove the company's current management. This usually occurs when shareholders are dissatisfied with management. There could be a variety of reasons for this, including capital structure, performance, and poor decisions., the acquirer company makes the shareholders of the target company agreed to use their proxy votes in a way that is in favor of the acquirer company so that they could make the desired changes in the target company or in its management.
In the case of a hostile takeover, the target company can use several mechanisms to defend itself against a hostile takeover. This mechanism could be a poison pillA Poison PillPoison pill is a psychologically based defensive strategy that protects minority shareholders from an unprecedented takeover or hostile management change by increasing the cost of acquisition to a very high level and creating disincentives if a takeover or management changes happen in order to alter the decision maker’s mind., the crown jewel defenseCrown Jewel DefenseCrown jewel defence strategy is an anti-takeover strategy applied during the M&A by the target company by selling off the company's most valuable assets to reduce the attractiveness from the hostile takeover. It is the last-resort strategy to be applied to stop the takeover., Pac Man defensePac Man DefenseA Pac-man defense strategy is used by a targeted company to protect itself from hostile takeovers in which the targeted company tries to buy the shares of the acquiring company with its liquid assets, causing the acquirer company to see the risk of being taken over by the targeted company, and thus the acquirer company abandons its plan to take over the latter., etc.
This article has been a guide to a What is Friendly takeover? Here we discuss the definition of friendly takeover along with examples, when does it occur, advantages, and the difference between Friendly Takeover and Hostile Takeover. You may also look at the following articles on Investment Banking to enhance your knowledge further.