Investment Banking Tutorials
- Mergers and Acquisitions
- What is Mergers and Acquisitions?
- Mergers vs Acquisitions
- Acquisitions Examples
- Horizontal Merger
- Vertical Merger
- Synergy in M&A
- Successful Mergers and Acquisitions
- Financing Acquisitions
- Acquisition Premium (Takeover)
- Statutory Merger
- Joint Venture
- Advantages of Joint Venture
- Types of Joint Venture
- White Knight
- Hostile Takeover
- Golden Parachute
- Poison Pills
- Killer Bees Defense Strategy
- Show Stopper in M&A
- What is Amalgamation?
- Spin off vs Split Off
- Forward Integration
- Backward Integration
- Horizontal vs Vertical Integration
- What is Divesting / Divestiture?
- Bootstrap Effect
- PAC MAN Defense
- Flip-In Poison Pill
- Flip-Over Poison Pill
- Scorched Earth Defense Policy
- Tender Offer
- Friendly Takeover
- Amalgamation vs Merger
- Lobster Trap Defense
- Asset Purchase vs Stock Purchase
- Joint Venture vs Strategic Alliance
- Greenshoe Option
- Dawn Raid Takeovers
- Crown Jewels Defense
- Best Mergers and Acquisitions Books
- What is Asset Restructuring?
- Investment Banking Basics (44+)
- Investment Banking Careers (25+)
- Investment Banking Firms (27+)
- Top Banks (42+)
- Cryptocurrency Basics (10+)
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 takeover 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 “Friendly Takeover”.
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 on the bid or votes on the bid. If the company ABC management evaluate 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 of 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 market, expansion in different product line 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 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 loses that may occur because of other types of takeovers as in the case of a Hostile takeover.
- Generally better price per share is another advantage of a friendly takeover.
Friendly Takeover Vs Hostile Takeover
Unlike a Friendly Takeover, In a Hostile takeover, the target company doesn’t want the acquirer to acquire it.
When the takeover is without the consent of the board of directors of the target company. It is hostile on the board of the directors of the target company then the takeover is called as “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 offer, 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 fights, the acquirer company makes the shareholders of the target company agreed to use their proxy votes in a way that is in the favour of 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 pill, the crown jewel defense mechanism, Pac Man defense etc.
This 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.