Types of Corporate Takeovers
There are several different types of takeover. The main
- 'Friendly Takeover' - the company
bidding will approach the directors of the other company
to discuss and agree an offer before proposing it to the
shareholders of that company.
The bidding company will also have an opportunity to look
at the accounts of the business they want to buy - a process
known as due diligence.
- 'Hostile Takeover' - the company
bidding has their offer rejected or does not approach
the board of the company they wish to buy before making
an offer to shareholders.
This also means they will not have access to private information
about the company - increasing the risk of the takeover.
Banks are usually more cautious about lending money for
- 'Reverse Takeover' - the final common
type of takeover is the reverse takeover. This happens
when a private (not traded on the stock market) company
buys a publicly-traded company as a means of acquiring
public status without having to list itself.
How Do I Get Paid For My Shares?
If you own shares in the company being taken over, you will be offered a purchase price for those shares and will be given the choice of accepting or declining the offer.
Assuming you accept, you will be paid in
one of several ways:
- Cash - this needs no explanation. Cash sales are usually funded by the bidding company borrowing money in some way. Using debt to fund a purchase is known as a 'leveraged buyout'
- Loan Note Alternative - instead of cash, you will often be given the chance of taking payment in loan notes (a bit like IOUs).
The advantage of this is that you will not have to pay Capital Gains Tax on any profits you make, because you are not exchanging your assets for cash. Loan notes can be sold at a future date.
- Shares - the other popular way of funding a takeover is through the bidding company issuing new shares (in itself). These are then offered to shareholders of the company being taken over as payment for their shares.
This is a common approach with reverse takeovers.
Read on Rough
Guide to Corporate Takeovers
Do I Get Paid For My Shares?
Are There So Many Takeovers?
for UK Corporate Takeovers