What is Takeover?

Key Highlights

• Takeover means Involving an acquiring company's successful bid to assume control of or acquire a target company.

• Takeovers occur because larger companies may want to acquire smaller ones for a few key reasons: Creating Value, Driving Change and Eliminating Competition.

• Highlighting the two main categories of takeovers – welcome and friendly takeovers versus unwelcome and hostile takeovers.

• Takeovers can influence the companies involved and the broader market dynamics.

Understanding of a Takeover

A strategic corporate choice in which one company takes control of another is called an acquisition or takeover. It can be done by purchasing significant amounts of the target company's stock or even by becoming the company's sole owner. Takeovers are frequently carried out for a variety of objectives, including acquiring a competitive edge, diversifying products or services, or increasing market presence. These deals transform the business environment and have the potential to alter the direction and leadership of the organization drastically.

Friendly and hostile takeovers are the two main types of takeovers. In friendly takeovers, the acquisition terms are reached by cooperative negotiation by both parties. Conversely, aggressive takeovers entail the acquiring business going straight after the target's stockholders, frequently against the management of the target company's resistance. The nature of the takeover largely determines the acquisition process's trajectory.

Takeovers can have a variety of goals, including combining companies' strengths, breaking into new markets, increasing operational effectiveness, or eradicating rivals. As we have understood the takeover meaning, they are subject to stringent oversight and regulation to guarantee their equitable and transparent execution, safeguarding the interests of all stakeholders, including employees and shareholders.

Types Of Takeover

In the business sector, takeovers come in a variety of forms. These are the three main groups:

1. Friendly Takeover: Through mutual consent and discussion, the target and acquiring companies agree to the acquisition in a friendly takeover. The terms and conditions of the takeover are usually worked out cooperatively by both parties, which makes for a more seamless transfer of power with fewer disputes or resistance.

2. A hostile takeover: A hostile takeover occurs when the management of the target company objects to the acquisition. In these situations, even in the face of opposition, the purchasing corporation may address the target's shareholders directly or use forceful techniques to seize control. Legal battles and public arguments between the parties are frequent features of hostile takeovers.

3. Merger: A merger is a sort of takeover in which two businesses come together to establish a new business. This entails combining the management, operations, and assets of the two businesses. Friendly mergers occur when two businesses voluntarily combine for their mutual advantage; hostile mergers occur when one business forcibly acquires the other while keeping both businesses' operations and assets

It's important to comprehend the unique traits and consequences of these takeovers because they can have a big impact on the companies involved, the shareholders, and the market as a whole.

Funding of Takeover

Obtaining funding for a purchase is an essential step in the process. It frequently calls for a sizable sum of capital, and businesses can get the required funding in a number of ways. These are some typical methods for funding a takeover.

• Investment Requirement: A large sum of money is frequently needed for takeovers in order to buy the target company's stock or other assets .

• Several Funding Options: Purchasing firms have access to a number of financing options, such as cash reserves, bank loans, debt issuance, equity financing, and asset sales, to help them raise the money they need.

• Debt and Interest: The acquiring company's financial stability may be impacted by the interest and long-term debt commitments that come with using debt for financing.

• Equity Dilution: Obtaining funding in the form of equity may result in current shareholders' ownership stake in the acquiring business being diluted.

• Strategic Points to Remember: The funding mechanism selected should be in line with the parameters negotiated with the target firm as well as the company's long-term financial strategy.

One of the most important aspects of the acquisition process is the financing plan, which has a big influence on the acquiring company's prospects and financial standing.

Examples of Takeover

Takeovers, also known as mergers and acquisitions, are common occurrences in the business world. In India, there have been several notable takeover examples. Here are a few real-life takeover examples:

1. Tata Steel's Acquisition of Corus Group (2007): Tata Steel, one of India's largest steel manufacturers, made a historic acquisition by taking over the UK-based Corus Group in 2007. This deal was one of the largest takeovers by an Indian company. It helped Tata Steel expand its global footprint and become one of the world's top steel producers.

2. Birla Group's Acquisition of Novelis (2007): The Aditya Birla Group, an Indian multinational conglomerate, acquired Novelis, a global leader in aluminum rolling and recycling, in 2007. This takeover helped the Aditya Birla Group expand its presence in the aluminum industry.

3. Reliance Industries' Acquisition of Future Group's Retail Business (2020): Reliance Industries, one of India's largest conglomerates, acquired the retail and wholesale business of Future Group in 2020. This takeover allowed Reliance to strengthen its position in the retail sector and expand its reach in India.

The situations mentioned above demonstrate the remarkable impact that takeovers and acquisitions have had on the expansion and unification of enterprises in India, encompassing diverse industries such as steel, medicines, retail, and telecoms.

Reasons for Takeover

A takeover happens when one company buys another. Here are a few simple reasons why a company might want to do a takeover:

• Business Growth: A company might buy another to grow its own business. By taking over a smaller company, it can become bigger and reach more customers.

• New Markets: Sometimes, a company wants to enter new markets where it doesn't operate yet. Taking over another company in that market can be faster than starting from scratch.

• Better Technology or Skills: A company might see another with great technology or skills it needs. So, it buys that company to use those things and get better.

• Cost Savings: When two companies join, they can save money by combining their operations. For example, they can reduce the number of employees or share resources.

• Eliminate Competition: If a company takes over a rival, it can reduce the competition in the market. This might help them charge higher prices or have more control.

• Financial Gains: In some cases, investors or shareholders in the target company want to sell their shares. The buyer can offer a good price, making the takeover appealing.

Remember, takeovers can have different reasons, and it depends on the goals and strategies of the companies involved.

Conclusion

A takeover is a significant business event where one company acquires another. It can occur for various reasons, such as expanding business operations, entering new markets, gaining access to technology or skills, achieving cost savings, eliminating competition, or realizing financial gains. Takeovers reshape the corporate landscape, impacting industries and markets while influencing the strategies of the companies involved. Whether viewed as an opportunity for growth or a competitive maneuver, takeovers play a crucial role in the dynamic world of business and finance.