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What Is A Targeted Repurchase
In mergers and acquisitions, a targeted repurchase refers to a technique where a company repurchases its own stock to prevent a hostile bidder from taking over control of the company.
In other words, a target company will repurchase its shares, hoping to include those of the unfriendly bidder, in an attempt to prevent the bidder from moving forward with a hostile takeover attempt.
Typically, the target firm will pay the hostile bidder a price that is well above the market value of the shares as an enticement to sell the shares.
For example, a company may offer to repurchase the shares from its shareholders by offering a premium on the market value of the shares.
If the company is able to repurchase enough shares giving a controlling interest that is large enough to stall or prevent a hostile takeover, the targeted repurchase strategy will be considered a successful one.
Keep reading as I will further break down the meaning of a targeted repurchase and tell you how it works.
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How Does A Targeted Repurchase Work
A targeted repurchase is a strategy used by some companies to thwart a hostile takeover attempt.
When a target company is exposed to a hostile takeover plan or bid, it can use the targeted repurchase strategy to defend itself.
To execute this strategy, the target company will offer the shareholders of the company a repurchase price that is well above the market value of the shares.
If the target company is able to repurchase a sufficient number of shares allowing it to bolster its controlling interest, it will have more voting power to prevent the hostile takeover from going through.
In some cases, when the repurchase price is very enticing, the hostile bidder may choose to sell its shares to benefit from the price offered.
When the target company is able to regain a controlling interest in the company or have the hostile bidder sell its shares, the targeted repurchase will be viewed as a successful strategy.
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Pros And Cons of Targeted Repurchase
In business, every company is out there to earn more profits, win market share, and beat its competitors,
As a result, some companies may consider acquiring another company in an unfriendly manner if the acquisition can result in greater gains for them in the future.
However, target companies can deploy many tactics to fight off an unfriendly takeover attempt and the targeted repurchase of shares represents one such strategy.
The main advantage of a targeted repurchase is that a target company can potentially acquire a controlling interest that is large enough to be able to vote against the hostile takeover bid.
In addition, if the company is able to successfully defeat the hostile bidder, it can then use its dominant position to implement other anti-takeover mechanisms to avoid future hostile takeover attempts.
On the flip side, a targeted repurchase can use up a company’s cash when it is really needed to fund the business.
Also, if the company is unable to repurchase enough shares, it may not be able to have enough votes to prevent the hostile takeover from going through.
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Targeted Repurchase Meaning FAQ
Why is a targeted repurchase important?
A targeted repurchase is an important anti-takeover strategy allowing target firms to forestall an unwanted takeover attempt.
There are many techniques that target firms can use to fight against hostile takeovers.
The targeted repurchase is a strategy where the target firm decides to repurchase its shares hoping that it will acquire enough voting interest to fight off the takeover or entice the hostile bidder to sell its shares at a premium.
What happens if the targeted repurchase does not work?
If the target firm is unable to purchase enough outstanding shares to acquire a voting interest large enough to fight off the hostile takeover, the strategy will fail.
However, the target firm may choose to set up a holding company that receives all the acquired shares and then starts converting to an employee stock ownership plan.
In other words, the target firm can use the targeted repurchase strategy with other strategies to defend itself.
What happens to the stock price in a targeted repurchase?
When a company uses the targeted repurchase strategy, it can have an impact on the stock prices.
At first, the stock price will rise and will eventually fall at the time of the repurchase.
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Takeaways
So there you have it folks!
What does a targeted repurchase mean?
In a nutshell, a targeted repurchase is a strategy used by companies to stall or derail a hostile takeover attempt.
The main objective is for a target company to repurchase enough shares allowing it to regain control over the company allowing it to block a hostile takeover attempt.
Typically, the target company will offer shareholders a premium over and above the market value of the shares to entice them to sell their shares.
Once the company repurchases enough shares allowing it to regain a controlling interest, it can then fight off the hostile takeover attempt.
Now that you know what a targeted repurchase is all about and how it works, good luck with your research!
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