Takeover Meaning
In case of oceans, big fish eats small fishes as they are more powerful and small fishes have only two options one is to keep hiding from big fishes and another option is to become the food of big fishes. In the case of corporate world similar thing happens where big companies sort of eat small companies and this act in the corporate world is called takeover. A takeover is a term used in the context of a corporate world where a big company acquires a small company by purchasing a majority stake so as to take control of a small company. In order to understand this concept better one should look at the important characteristics of takeovers –
Characteristics of Takeovers
Big and Small Companies
The takeover does not happen between companies which are of the same size because in the case of companies which are of same size merger happens and not takeovers. In simple words, the first condition for takeover is that acquiring company should be bigger than the acquired company and not vice versa.
Types of Takeovers
Takeover can be friendly one where both small as well as big company is happy and take positives from the deal resulting in no problem for both the companies and another type of takeover can be hostile in which small company does not want to give majority stake to big company and big company resorts to hostile tactics like dawn raid, poison pill and so on resulting in takeover being bumpy and not a smooth one like friendly takeover.
Numerous Reasons
Takeover can be due to many reasons like acquiring company willing to increase its market share by acquiring company in same industry or acquiring company may try to achieve economies of scale by acquiring that company which is supplying raw materials to the acquiring company or companies may do takeover so as to enter into new markets by acquiring a company which is completely unrelated to acquiring company and so on.
Top Management
In case of takeovers top management of the acquired company changes completely and it is replaced by the management of the acquiring company which is not the case with mergers where top management of new company comprises of both the companies and not one company.
Acquiring Company Remains
In case of mergers both companies merge and chances are that name of the company may remain or company with a new name is formed but as far takeovers are concerned the new company will operate in the name of acquiring the company as no new company is formed after the takeover process is complete.
As one can see from the above that takeover has some unique characteristics and that is the reason why any company thinking of taking this step should carefully read above points and then only should decide whether to go for it or not.