Full Answer
What happens to the target company when a company is acquired?
The target company staves off the unwanted advances of the acquiring company by making its own bid to take control of the acquiring company. The approach is rarely successful and runs the risk of saddling the company with a large acquisition debt.
What triggers a shareholders'rights plan?
A shareholders' rights plan triggers immediately after the potential acquirer reveals their takeover scheme. These plans give existing shareholders the opportunity to buy additional company stock at a discounted price. Shareholders are tempted by the low price to buy more stock, thereby diluting the acquirer's ownership percentage.
What happens to shareholders when a company is taken over?
Shareholders are tempted by the low price to buy more stock, thereby diluting the acquirer's ownership percentage. This makes the takeover more expensive for the acquirer and could potentially thwart the takeover entirely. At the very least, it gives the company's board of directors time to weigh other offers.
Do hostile takeovers affect shareholders of target companies?
While most articles and books view such events from the perspective of investment bankers and corporate officers, little has been written about the impact of hostile takeovers on shareholders of target companies.
When a consolidation occurs What happens to the original corporations?
Statutory Consolidation: When businesses are combined into a new entity, the original companies cease to exist. By combining them together, they create a new, larger corporation. As such, statutory consolidation is normally done through a merger.
What is the difference between the procedures governing mergers and consolidations?
Business mergers involve two or more companies combining through a takeover and the emergence of one surviving company. On the other hand, business consolidation happens when two or more companies combine to create a new single company.
Which of the following is a correct statement regarding corporate transfer of rights powers and privileges in a merger?
Which of the following is a correct statement regarding corporate transfer of rights, powers, and privileges in a merger? Multiple choice question. All states allow corporations to transfer their rights, powers, and privileges in a merger.
Do shareholders have to approve a merger?
The need for shareholder approval of a merger is governed by state law. Typically, a merger must be approved by the holders of a majority of the outstanding shares of the target company.
What are mergers and consolidations?
During a merger, essentially other corporate entities become a part of an existing entity. This can be useful for smaller companies merging into larger companies that have greater brand recognition and market traction. Conversely, a consolidation is when multiple companies join to form a new entity.
What is stock acquisition?
An acquisition is when one company purchases most or all of another company's shares to gain control of that company. Purchasing more than 50% of a target firm's stock and other assets allows the acquirer to make decisions about the newly acquired assets without the approval of the company's other shareholders.
Which agreement is known as merger?
A merger is an agreement that unites two existing companies into one new company. There are several types of mergers and also several reasons why companies complete mergers. Mergers and acquisitions (M&A) are commonly done to expand a company's reach, expand into new segments, or gain market share.
Which are types of mergers that involve corporations that have created subsidiaries?
5 Types of Company MergersConglomerate. A merger between firms that are involved in totally unrelated business activities. ... Horizontal Merger. A merger occurring between companies in the same industry. ... Market Extension Mergers. ... Product Extension Mergers. ... Vertical Merger.
What is agreement and plan of merger?
An agreement setting out steps of a merger of two or more entities including the terms and conditions of the merger, parties, the consideration, conversion of equity, and information about the surviving entity (such as its governing documents).
What is shareholder approval?
Shareholder Approval means approval by the holders of a majority of the outstanding shares of Common Stock, present or represented and entitled to vote at a meeting called for such purposes.
What is a two step acquisition?
A tender offer or an exchange offer, followed by a “back‑end” or “squeeze out” merger, is referred to as a “two‑step acquisition.” Cash offers for the target's shares are called tender offers and offers in which the consideration includes acquirer securities or a combination of cash and securities are called exchange ...
What is a corporate merger?
A company merger is when two companies combine to form a new company. Companies merge to expand their market share, diversify products, reduce risk and competition, and increase profits.
What is shark repellent?
Shark repellent refers to clauses a company can add to its charter that are triggered by a hostile takeover attempt and make the company unappealing to the would-be acquirer. A poison pill is a common defensive tactic used by target companies to discourage an acquirer from their hostile takeover attempts.
What is greenmail option?
Greenmail Option. Greenmail is when a targeted company agrees to buy back its shares from the prospective raider at a higher price in order to prevent a takeover. The term is derived from combining "blackmail" with "greenbacks" (dollars).
What did Carl Icahn do to get his shares back?
In the case of Saxon Industries, a New York distributor of specialty papers, Icahn purchased 9.5% of the company's outstanding common stock. In exchange for Icahn agreeing to not undertake a proxy battle, Saxon paid $10.50 per share to buy back its stock from Icahn. This represented a 45.6% profit to Icahn, who originally paid an average price of $7.21 per share.
What does it mean when a company has a staggered board?
Since the raider is eager to fill the company's board with directors that are friendly to the takeover plans, having a staggered board means that it will take time for the raider to control the company via a proxy fight. The target company is hoping the raider will lose interest rather than engage in a protracted fight.
Why did Papa Johns add shareholder rights?
This was the case in July 2018 when the board of directors for Papa John’s International Inc.’s (PZZA) voted to add a shareholders' rights plan to its charter to prevent ousted founder John Schnatter from gaining control of the company.
What is a voting rights plan?
A voting rights plan is a clause a company's board of directors adds to its charter in an attempt to regulate the voting rights of shareholders who own a predetermined percentage of the company's stock.
How does anti-takeover affect shareholders?
The effect that anti-takeover tactics have on shareholders often depends on the motivations of management. If management feels the takeover will lead to a decline in the company's ability to grow and generate a profit, the correct action may be to use all strategies available to fend off the takeover.
