A takeover generally means the acquisition of a certain number of shares of an existing company which enables the acquirer to have control over the affairs of the acquired firm. In a takeover an offer is made by the acquirer to the shareholders of the firm to acquire their securities for a consideration.
Theoretically, firm having 50 percent of the paid up capital will enjoy control over the firm. But in practice, the firms with less than 50 percent of paid-up capital are also exercising the control, as the remaining shareholders hold small percentages of equity and further the shareholders are spread over, thus these shareholders are unlikely challenge the control of the acquirer.
The takeovers are classified as
Â· Friendly Takeover
Â· Hostile Takeover.
In friendly takeovers, the acquisition of shares takes place with the approval and agreement of the existing management through negotiations. In hostile takeovers, acquisition of the shares takes place without informing the existing management.
Difference between Merger and Takeover:
Â· In a merger one of the companies loses its identity. Whereas, in a takeover both the companies continue their existence.
Â· In merger, the consent of the shareholders is mandatory. Whereas shareholdersâ€™ consent is not necessary in takeovers.
Â· Merger takes place by exchange of the shares. The shareholders of the amalgamating company are given the shares of the amalgamated company, whereas, in takeover the acquirer firm purchases the shares of the acquired firm on payment of cash
The other forms of corporate restructuring:
Spin off is the transformation of a single firm into two or more firms. For example, an existing firm A is transformed into two companies as B and C.
Divestiture is another form of corporate restructuring where a firm sells a fraction of its total assets to another firm. For example, a firm has a soap manufacturing division and a packaging division. According to divestiture the firm sells either of the two divisions as a strategy for corporate restructuring.
In a leveraged buyout the acquirer firm acquires a substantial portion of the equity capital of the acquired firm, by using the cash raised through issuing of debentures backed by the assets of the leveraged buyout firm.
For example, acquirer Firm A using the cash raised through debentures, obtains the proportion of the equity of the firm B. Then this strategy is called leveraged buyout.
Privatization involves the sale of the controlling portion of the equity capital of public enterprises from the government to individuals and non-governmental organizations. For example, the 51 percent stake of government in Maruti Udyog Limited is reduced to 49 percent as a part of government privatization program.
Rehabilitation is the reviving of a sick unit. Many firms become sick because of various like mismanagement, improper planning, labor, problems, market competition etc. The rehabilitation schemes re being offered by the Board for Industrial and Financial Reconstruction (BIFR) and Industrial Reconstruction Bank of India (IRBI)