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Godfather Offer

An extremely generous offer made by an acquirer that the target company can't practically refuse

What is a Godfather Offer?

In a broad sense, a Godfather offer can be described as an offer that is so ridiculously favorable, that to refuse it would be a dereliction of financial responsibility. In the business/finance world, a Godfather offer most often refers to an offer made by one company to take over another, with terms that make it essentially impossible for the target company to refuse.

 

Godfather Offer

 

The Godfather Tender Offer

The base of the Godfather offer is a tender offer. It involves a company or investor putting forth an offer to a target company’s shareholders. The proposition is fairly simple: the investor or company agrees to pay the shareholders an absurdly favorable amount or offers them a ridiculously favorable deal.

One reason Godfather tender offers are so effective is that a company is able to offer shareholders a favorable deal without permission or involvement from their board of directors. The individual or group representing the acquiring company can make the offer and interact directly with the shareholders without being jeopardized by involvement from an outside party.

 

History of the Godfather Offer

The term “Godfather offer” originated from the classic 1972 Coppola mafia film – “The Godfather” – in which the patriarch – played by Marlon Brando – talked about making “an offer they can’t refuse.” In the film, Brando was speaking more to threatening physical harm/death to those who would not comply with his demands.

In the world of business, a Godfather offer isn’t quite so drastic. While the correlation is clear, the film leans more towards a threat. But in the takeover world, a Godfather offer is not a threat, but a promise – the promise of an offer so lucrative that the receiving party would be foolish to refuse, or – as is true in many cases – can’t refuse because their financial situation is so poor that to refuse would mean financial ruin.

 

Example of a Godfather Offer

Godfather offers are extremely common in takeover situations, specifically in the event of a hostile takeover. In such a situation, the targeted company doesn’t want to be acquired. However, the bidding company – the one looking to take over the targeted company – make the targeted company’s shareholders a Godfather offer.

In such a situation, the board of the targeted company can’t dissuade shareholders from refusing the offer because it is likely an incredibly sweet deal. If, for example, Company B is targeted for takeover by Company A, Company A may offer shareholders of Company B $15 per share when each share is worth $11.

In such an instance, Company B’s shareholders are most likely aware that the takeover is imminent and that they aren’t likely to get a better deal on their shares. With such a premium offer – nearly 40% over the share’s current market price – the shareholders are unlikely to refuse to accept the Godfather offer of $15.

 

Final Word

A Godfather offer, in keeping after the film’s namesake, refers to an offer that can’t be refused. Whether because the recipient can’t financially choose to refuse the offer or simply because refusing the offer amounts to financial irrationality, a Godfather offer is designed to help the party extending the offer and the shareholders who receive the offer.

 

Additional Resources

CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Dawn Raid
  • Friendly Takeover
  • M&A Process
  • Takeover Premium

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