Friendly Takeover

A friendly Takeover is a type of takeover that is very friendly as the management of the acquired company and the management of the target company agree to the terms and conditions of the takeover. A takeover is done without any difficulty, arguments, etc., and fights. An acquirer doesn’t have to plot or make any strategies against the target company to acquire the same.

Therefore in literal terms, we could say that when the takeover is with the consent of the board of directors and shareholders of the target company, the takeover is called a "Friendly Takeover."

• A friendly takeover means the target company consents to the acquisition offer. This takeover is subject to the target company's shareholder's approval and the regulators to verify if the deal satisfies the Antitrust laws.
• An acquirer does not need to plan or make any approach against the target company for acquiring the same. Therefore, it is called a "Friendly Takeover."
• This takeover's most significant benefit to the target company is the price per share, often better than the current market price

Let’s assume there is a company called XYZ interested in buying a majority in company ABC. Company XYZ makes a plan to approach company ABC's board of directors with a potential bid. Company ABC's board of directors would then discuss the bid or vote on the bid. If the company ABC management evaluates that the deal is beneficial to the company, they will accept the offer and recommend the deal to shareholders. After all the approvals from a board of directors, shareholders, and other regulatory authorities are involved, the deal will be finalized.

source: jnj.com

Pharmaceutical and health care giant Johnson & Johnson announced the successful completion of a Friendly Takeover of Dutch vaccine maker Crucell which employs 1,300 people, produced more than 115 million doses of vaccine in 2009 for distribution in about 100 countries, for about 1.75 billion euros ($2.37 billion). Johnson & Johnson and Crucell jointly announced that Johnson & Johnson had completed the tender offer for Crucell. Johnson & Johnson, which employs 114,000 people, intends to retain Crucell’s management and staff and keep the headquarters at Leiden in the western Netherlands. Johnson & Johnson now owns more than 95 percent of Crucell’s capital. The European Commission authorized the takeover seeing no competition problems.

A Facebook takeover of WhatsApp is another prominent example of a friendly takeover where Facebook bought WhatsApp for $19 Billion.

source: reuters.com

The Friendly Takeover has many benefits that it offers to the target company. When a target company sees that their benefit after this takeover is enough to trade with their current business, they go for or agree to the deal that an acquirer offers. The biggest benefit offered to the target company by this takeover is the price per share, which is often better than the current market price.

• The target company might also receive other benefits in addition to the better per-share price that includes better opportunities to expand the business, explore the different markets, and expand in different product lines, etc.
• It is very important to note that there is always a country's regulatory body involved in a takeover whose approval is mandatory for the takeover to happen.
• If the regulatory body doesn’t approve the takeover terms or feels that the takeover would be harmful in any circumstances, it would not happen even after the acquirer and the target company agree to the takeover.

There are many advantages associated with a Friendly Takeover:

• In this takeover, both the acquirer and target company take part in designing the deal structure to their mutual satisfaction.
• In this takeover, the target company doesn’t have to face or experience any annoying disputes or losses because of other types of takeovers, as in the case of a Hostile takeover.
• Generally, a better price per share is another advantage of a friendly takeover.

Unlike a Friendly Takeover, In a Hostile takeover, the target company doesn’t want the acquirer to acquire it.

When the takeover is without the consent of the board of directors of the target company, it is hostile on the board of the directors of the target company; then, the takeover is called a “Hostile Takeover.”

In this type of takeover, the acquirer will directly go to the company's shareholders to acquire the shares of the target company without letting the management of the target company know about such actions.

An acquirer may proceed with the hostile takeover using any of the following strategies:

• Tender Offer: In a tender offer, the acquirer company makes a public offer to purchase shares from the target company's shareholders at a price more than the current market price.
• Proxy Fight: In proxy fights, the acquirer company makes the shareholders of the target company agree to use their proxy votes in a way that is in favor of the acquirer company so that they could make the desired changes in the target company in its management.

In the case of a hostile takeover, the target company can use several mechanisms to defend itself against a hostile takeover. This mechanism could be a poison pill, the crown jewel defense, Pac Man defense, etc.

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This article has been a guide to a What is a Friendly takeover? Here we discuss the definition of a friendly takeover and examples, when it occurs, its advantages, and the difference between a Friendly Takeover and a Hostile Takeover. You may also look at the following articles on Investment Banking to enhance your knowledge further.

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