What Is A Friendly Takeover (Explained: All You Need To Know)

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What Is A Friendly Takeover

A friendly takeover refers to a merger or acquisition attempt where the target company agrees to be bought out or merged with the acquiring company.

In other words, a friendly takeover is when the target company’s management approves another company’s offer to acquire a controlling interest in their organization.

For example, if a company makes an offer to acquire another company that agrees with the acquisition terms, then we’ll refer to this acquisition as a friendly takeover.

A friendly takeover is the opposite of a hostile takeover where the acquiring firm’s offer is rejected by the target company’s board of directors.

Typically, when an acquiring company makes an offer to acquire a target, although the board of directors may agree with the offer terms and conditions, the target’s shareholders will still need to approve the transaction.

Also, the proper regulatory authorizations must also be obtained before the transaction can be fully consumed.

Keep reading as I will further break down the meaning of a friendly takeover and tell you how it works.

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How Does A Friendly Takeover Work

A friendly takeover, as the name suggests, is a takeover attempt by an acquiring company that is agreed to and accepted by the target’s board of directors.

The friendly takeover generally starts when a company submits a purchase offer to a target company’s board.

To the extent the acquisition terms and conditions are fair and mutually agreed upon by the acquirer and target, the board of directors will approve the transaction.

Then, the mutually agreed purchase offer will be presented to the target’s shareholders for approval.

In most cases, if the target’s board of directors approves the transaction, the shareholders are also highly likely to approve the transaction as well.

Then, the transaction must be approved by the regulatory bodies.

In the United States, the U.S. Department of Justice will need to provide the final approval for the friendly takeover to go through.

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Benefits of Friendly Takeover

Friendly takeovers are beneficial for both the acquiring firm and the target firm in many ways.

The most important advantage is that both parties agree on the deal terms and believe that the transaction can bring value to their respective organizations.

This immediately leads to a smoother takeover transaction where the parties work together to achieve a common goal beneficial for all.

Both the target company and acquirer will also benefit from a friendly takeover as they will not have to spend time, money, and resources to fight against an unwanted and hostile takeover attempt.

Typically, when the target company does not agree with the takeover bid, the acquirer will deploy hostile tactics to acquire the target while the target may deploy various defense strategies to fight against the hostile takeover attempt.

Also, when both companies perceive the transaction as beneficial, synergistic, and allowing them to create more value in the future, they will have an easier time integrating their business with one another following the acquisition.

Otherwise, the integration can be difficult, resulting in the loss of good talent, and ending up quite costly for the two companies.

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Friendly Takeover Example

Let’s look at an example of a friendly takeover to better understand its mechanics.

Let’s assume that Company ABC is looking to expand its market share by acquiring a smaller competitor (Company XYZ).

Company XYZ’s shares are trading at $50 per share.

Company ABC submits to Company XYZ’s board of directors an offer to purchase all of the outstanding shares at a price of $55 per share, representing a 10% premium over the current market value.

Company XYZ’s board rejects the offer and makes a counter-offer at $65 per share.

Company ABC rejects that counter-offer and makes an offer at $60 per share, allowing the parties to reach an agreement.

Now that the $60 per share price is agreed upon, the offer will be presented to Company XYZ’s shareholders for approval (which they approve).

Finally, the lawyers handle all the paperwork to get the required regulatory approvals and make the necessary filings.

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Friendly Takeover Meaning FAQ

What are the components of a friendly takeover?

Generally, friendly takeovers are those where the target’s management agrees with the terms of the takeover bid which can include cash or stock offers along with a premium.

The acquirer may pay part of the acquisition price in cash and another party in shares.

In addition, to entice the target’s management to agree with the takeover bid, the acquirer will offer a premium to the target’s shareholders that is important enough for them to approve the takeover bid.

What is the difference between a friendly takeover and a hostile takeover?

The main difference between a friendly takeover and a hostile takeover is that the target company’s management either agrees or disagrees with the takeover bid.

When the takeover is friendly, the target company’s management will work in collaboration with the acquirer to have the transaction approved by the shareholders and regulatory bodies.

However, when the takeover is hostile, the target company’s management will use different tactics and strategies to fend off the acquiring company so they ultimately withdraw their takeover bid.

Can a friendly takeover bid become hostile?

Yes, any takeover attempt that may advance at first in a friendly manner can eventually become hostile.

For instance, if an acquiring firm presents a takeover bid to a target that may lead to an amicable negotiation between the parties.

However, during the negotiations, the target company discovers certain things leading them to believe that the takeover may not bring them value.

If the target changes its mind to proceed with the acquisition, the acquiring firm may engage in hostile tactics to move forward with the takeover.

What is a real-life example of a friendly takeover?

A real-life example of a friendly takeover is when Google decided to acquire Fitbit in 2019.

In essence, Google and Fitbit agreed that Google will pay $7.35 for every outstanding share of Fitbit.

The deal was ultimately approved by Fitbit shareholders and regulators.

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Takeaways 

So there you have it folks!

What does a friendly takeover mean?

In a nutshell, a friendly takeover is a type of acquisition where the target’s management agrees with the takeover terms and conditions presented by an acquiring firm.

The reason why the takeover attempt is “friendly” is that the acquirer’s management and the target’s management are able to reach an agreement as to the takeover terms and conditions.

The most important takeover condition is generally the price paid by the acquirer for each outstanding share of the target.

Once the target’s management approves the takeover bid, it is then submitted to the target’s shareholders for approval.

Ultimately, when the regulatory approvals are obtained, the transaction is completed.

Now that you know what a “friendly takeover” is all about and how it works, good luck with your research!

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