Corporate Takeover Analysis

A corporate takeover is when a corporation takes ownership of another company without negotiation but rather by just trying to buy up controlling interests. Through takeovers, corporations can consolidate their market share and reduce competition.

Friendly Takeover

A friendly takeover is an amicable affair. A corporation will offer a sum of money for a controlling interest in another one. The other corporation accepts this offer, shareholders get a large payout, and employees work for the company that took over theirs.

Hostile Takeover

In a hostile takeover, a company's employees and board of directors will resist attempts by a larger company to acquire a controlling interest. This means that shareholders will be reluctant to sell their stock. What's more, employee morale can be low post-takeover as employees find themselves working for a different company with different values.

Effects

The effects of fighting hostile takeovers can be costly. For example, many companies use "poison pill" agreements. These allow shareholders to purchase additional stock at a heavily-discounted price in the event of another company announcing intentions to take over. This drops the stock price and makes it a less attractive investment while simultaneously increasing the amount of stocks that need to be bought. This is not attractive for anyone except the executives maintaining control.

References

• Investopedia: "Takeover Definition"
• Investopedia: "Hostile Takeover"
• Investopedia: "Friendly Takeover"
• Investopedia: "Corporate Takeover Defense: A Shareholder's Perspective"