Understanding Friendly Takeovers: Process, Examples, and Benefits
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Summary:
A friendly takeover occurs when the management and board of directors of a target company agree to be acquired by another company. It is a scenario where the acquiring company and the target company cooperate in the acquisition process, as opposed to hostile takeovers where the target company opposes the acquisition.
Understanding a friendly takeover
A friendly takeover is a strategic move in the corporate world where an acquiring company proposes to purchase another company with the consent of the target company’s management and board of directors. This type of acquisition typically involves negotiation and collaboration between both parties. The process of a friendly takeover usually includes several key steps:
Proposal
The friendly takeover process often begins with the acquiring company making a formal proposal to the target company. This proposal outlines the terms of the acquisition, including the purchase price and any other relevant conditions.
Negotiation
Once the proposal is made, negotiations between the acquiring company and the target company begin. During this phase, both parties may discuss and modify the terms of the acquisition to reach a mutually beneficial agreement.
Approval
After negotiations, if the management and board of directors of the target company are satisfied with the terms of the acquisition, they will approve the deal. Shareholders of the target company may also need to vote on the acquisition, depending on legal requirements and corporate governance guidelines.
Regulatory review
In addition to internal approvals, friendly takeovers must undergo regulatory review to ensure compliance with antitrust laws and other regulations. Regulatory bodies, such as the U.S. Department of Justice, may scrutinize the proposed acquisition to assess its potential impact on competition and consumers.
Completion
Once all necessary approvals are obtained, the acquisition is finalized, and the acquiring company assumes control of the target company. The completion of a friendly takeover marks the beginning of integration efforts, where the two companies merge their operations and assets.
Example of a friendly takeover
An illustrative example of a friendly takeover is the acquisition of Deutsche Wohnen (DW) by Vonovia, two prominent real estate companies in Germany. In 2015, Vonovia made an unsolicited bid to acquire DW in a hostile takeover, but the attempt was thwarted by DW’s management.
However, in 2021, Vonovia renewed its interest in acquiring DW and approached the company with a friendly offer. After negotiations, DW agreed to be acquired by Vonovia for 19 billion euros in a cash takeover. This transaction, referred to as a “friendly return of a business combination,” became the largest M&A deal in Europe for 2021.
The difference between a friendly takeover and a hostile takeover
In a friendly takeover, both the management and shareholders of the target company are in agreement with the acquisition, and the process proceeds smoothly with their cooperation. In contrast, a hostile takeover occurs when the target company’s management opposes the acquisition, and the acquiring company may bypass them by directly appealing to the shareholders.
Types of takeovers
There are several types of takeovers in the business world, including:
- Friendly takeover: Ocurs with the consent and cooperation of the target company’s management and board of directors.
- Hostile takeover: Occurs when the target company’s management opposes the acquisition, and the acquiring company may appeal directly to the shareholders.
- Reverse takeover: Involves a private company acquiring a publicly traded company, often as a means to become publicly listed without going through an initial public offering (IPO).
- Backflip takeover: Occurs when the acquiring company becomes a subsidiary of the company it has acquired.
Frequently asked questions
What are the key steps in a friendly takeover?
The key steps in a friendly takeover include proposal, negotiation, approval, regulatory review, and completion.
Why do companies opt for friendly takeovers?
Companies may choose friendly takeovers because they offer a smoother process, cooperation from the target company’s management, and potential synergies post-merger.
How does a friendly takeover differ from a hostile takeover?
In a friendly takeover, the target company’s management and shareholders are in agreement with the acquisition, while in a hostile takeover, the target company’s management opposes the acquisition.
Key takeaways
- A friendly takeover involves the acquisition of a target company with the consent of its management and board of directors.
- Key steps in a friendly takeover include proposal, negotiation, approval, regulatory review, and completion.
- Friendly takeovers offer several advantages, including better value deals and a smoother integration process.
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