A takeover occurs when the controlling interest in a corporation shifts from one party to another. Takeovers are categorized as either hostile or friendly depending on whether the management of the company being taken over is a willing participant or not.
As per the requirements of the Williams Act, any party who obtains more than 5% of a corporation's outstanding stock must file a report with the Securities Exchange Commission (SEC) claiming whether they intend to initiate a takeover or not.
If the party declares that they intend a takeover, they will then release a tender offer which must also be registered with the SEC. A tender offer is an outstanding offer to any shareholders to purchase their shares for a set price. This price is typically above market value to incentivize a large number of parties to sell and the company making the tender offer must disclose financial statements regarding how it is financed. Tender offers are also subject to the requirements of 17 CFR § 240.14e - f which regulates when and how tender offers can be changed or taken off the market.
- In a hostile takeover, the tender offer is released to the public and the success of the takeover depends on whether the terms of the offer entice enough shareholders to sell their stake in the company.
- In a friendly takeover, the management of the company being taken over negotiates terms with the company initiating the takeover and holds a shareholder vote on whether to accept the terms or not.
- This vote determines the success of the friendly takeover.
Takeovers occur for a collection of reasons though the primary ones include industry diversification, corporate raider attempts, and removal of competition. Due to the potential antitrust behavior of takeover for the purposes of removing competition, all takeover attempts, hostile or not, must receive clearance from the FTC to ensure that a monopoly will not result.
Corporate takeover is similar to the concept of corporate merger.
See also: greenmail
[Last updated in July of 2022 by the Wex Definitions Team]