The acquirer purchases only the assets of the target company (not its shares).
A company acquires a target that produces the raw material or the ancillaries which are used by the acquirer. It intends to ensure an uninterrupted supply of high-quality raw materials at a fair price.
One of the poor reasons to make a merger. If the target’s P/E ratio is lower than the acquirer’s P/E ratio, the EPS of the acquirer increases after the merger. However, it is purely an accounting/numerical phenomenon, and no value or synergies are created.
The portion of the purchase price given to the target in the form of cash.
One of the poor reasons to make a merger. Management compensation is according to company performance benchmarked to other companies, so an increase in the size of the company often means an increase in salary for management.
Acquirer slowly, over a period of time, buys the shares of the target in the stock market to gain a controlling interest in the company.
A takeover attempt that buys all available shares of the target company at the current market price as soon as the stock exchange is open for business.
Acquirer presents an attractive takeover that the target company cannot refuse. A godfather offer does not have negative implications that are usually associated with this type of takeover offer, including a change of the management team, asset stripping, or transfer of reserves.
Acquirer offers an attractive price to target shareholders to sell their shares in the case of a clean takeover bid.
Purchasing less than 5% of a company’s shares – to obtain a significant equity position, perhaps aiming to eventually gain a controlling interest, but a small enough purchase to avoid having to notify regulatory authorities.
Target selling the most valuable parts of the company (crown jewels) if a hostile takeover occurs. This deters acquirers from pursuing the hostile takeover.
The provision requires that anti-takeover defenses can only be canceled by a vote of the board, so acquirers who want to avoid the consequences of the defenses must receive approval from the board before initiating a takeover.
Target company’s shareholders can purchase more shares of its stock at a discount. This dilutes the stock, making it more expensive and difficult for a potential acquirer to obtain a controlling equity interest (more than 50% of voting shares).
Target company’s shareholders can buy the post-merger (acquirer) company’s stock at a discount. Target company is counterattacking by diluting the acquirer’s stock.
Target company playing along with the hostile bid and stalling for time while waiting for a white knight to appear.
Scorched Earth Policy
Target borrows money at extremely high interest rates to make takeover unattractive. It’s a double-edged sword because although the takeover is prevented, the company may be destroyed by crippling debt.
Target starting litigation to thwart an attempt at a takeover.
A requirement that a very large percentage of shareholders approve of major decisions of the company – an attempt to fend off hostile takeovers.