Takeover bid definition
Takeover bid meaning
Through a takeover bid, buyers are announcing the price that they will pay for company stocks. They also state the terms and conditions of the bid, such as a cash payment or a mixture of stocks and cash payment. The offer is given directly to the shareholders.
For a takeover bid to be completed, it requires shareholders’ consent. They are not obliged to accept the offer. They could reject the takeover bid, in anticipation of a better offer from that buyer. Or they could wait for another buyer to initiate a new takeover bid.
What is a takeover bid?
A takeover bid is started between the buyer or acquirer and the target company. The goal for the buyer is to get control of the company. There are a variety of reasons why an acquirer might like to purchase a company. For instance, the bidder may have plans to increase the market share of the bidder company. A takeover bid can also be used as a strategy to cope with the competition. A company may also gain access to patents and brands of another business.
There are a couple of basic types of takeover:
A friendly takeover is when the acquirer informs the company about its plans to make an offer to buy the company. Executives of the target company evaluate the benefits of the takeover in terms of the impact on shareholders’ value. If it is found that it would be beneficial for shareholders, then the management can support the takeover.
If the board of directors from the target company rejects the takeover bid, then it becomes a hostile takeover. They might reject the bid if they think it would have a negative impact on the company. A hostile takeover can also occur when the investor doesn’t communicate its intentions to the target company management and instead makes the offer directly to the shareholders.
A reverse takeover bid can happen in a situation when a publicly-traded company receives an offer of takeover by a company not listed on the exchange. If the acquirer has sufficient funds and plans to be listed, they can do so with a reverse takeover. By doing a reverse takeover, the private company has the opportunity to bypass costs associated with an Initial Public Offering (IPO).