Takeovers

1
Takeovers

• How is it done?
• When attempting a hostile takeover a firm must
  buy shares. If a firm buys 5 or more of another
  companies shares they must declare it. The
  directors of the firm being attacked then make a
  defence statement.
• Share prices will increase for 1/both firms
  involved.
• If the aggressor firm has 30 of the shares they
  must decide if they are going for the bid and if
  so must do it within 60 days. If so, they will
  offer shareholders a price they need to get 50.
  If they dont they will withdraw their pledge and
  reduce holdings to 30.
• Why do takeovers occur?
• To expand Extend product range (e.g. Rover
  BMW), increase distribution networks (e.g.
  Cadburys), increase production capacity and to
  reap economies of scale.
• To remove competition This must be done
  carefully ensuring it does not attract the
  attention of the M.M.C. as if its seen to be not
  in the public interest it can be stopped.
• Diversify This allows the company to increase
  its product portfolio.
• To safeguard sources of raw materials/parts/distri
  bution outlets.
• Asset stripping.
• Synergy When a merger is mutually beneficial it
  means the combined result of the 2 firms
  activities are greater than the sum of the
  separate companies operations (due to economies
  of scale/less competition/rationalisation) i.e.
  225.

2

• How does the company evaluate a takeover?
• A company can simply examine whether it has
  resulted in an increase in profit and/or a
  reduction in costs. This can be analysed via
  numerous qualitative investment appraisal
  techniques.
• The takeover may have resulted in a reduction in
  risk for the company.
• Other aspects are not so easy to quantify
• The effect on personnel (redundancies/staff
  morale/union reaction)
• The effect on the firms reputation (hostile bids
  can be bad publicity)
• Managerial consequences (do we know how to manage
  the new business?)
• Operational concerns (will there be factory
  closures/fall in retail outlets?)
• Ethics (is it anti-competitive and seen as
  reducing customer choice).
• How is it financed?