In the corporate world, the terms merger, acquisition, and takeover are quite commonly used to describe a scenario in which two companies are joined together to act as one. There maybe many reasons for two companies to combine their operations; it maybe in a friendly manner with agreement from both parties or in a hostile unfriendly manner. The following article provides a clear explanation of what the two terms mean and outlines how they are different and similar to each other.
Takeover
Takeover is very similar to an acquisition where one company will purchase another for an agreed sum in cash or number of shares. The important point to note is that, as the term suggests, a takeover will most probably be a hostile and unfriendly action in which one company acquires enough shares of another (more than 50%) so that the acquirer is able to take over the operations of the target company. A takeover may also be a friendly one, in which the company that wishes to acquire the target may take an offer to the board of directors who may (in a friendly takeover) accept the offer if it seems beneficial to the future operations of the target company.
Acquisition
An acquisition is quite similar to a takeover, in that, one company will purchase the other; however, it is usually on a pre-planned and orderly manner in which both parties strongly agree if beneficial to both firms. In an acquisition, the company that acquires the target will be entitled to all the target company’s assets, properties, equipment, offices, patents, trademarks etc. The acquirer will either pay in cash to acquire the firm or provide shares in the acquirer’s firm as compensation. In most cases, after the acquisition is complete the target company will not exist, and would have been swallowed up by the acquirer and will operate as an indistinguishable part of the larger acquirer firm. In other instances, the target may also operate as a separate unit under the larger firm.
Takeover vs Acquisition
Acquisitions and takeovers are quite similar to each other, and in both acquisitions and takeovers, the acquirer firm purchases the target and both firms will operate as one larger unit. The reasons for which either an acquisition or takeover occurs is also quite similar, and usually occurs because combined operations can benefit both firms through economies of scale, better technology and knowledge sharing, larger market share etc. During both an acquisition and takeover, the acquirer is entitled to all assets as well as liabilities of the target firm. The only major difference between the two is that a takeover is usually a hostile act, whereas an acquisition is usually an agreed upon well planned operation.
Summary:
• Acquisitions are takeovers are quite similar to each other, and in both acquisitions and takeovers the acquirer firm purchases the target firm and both firms will operate as one larger unit.
• A takeover is usually a hostile act, where the acquirer will surpass the target company’s board of directors and will purchase more than 50% of the shares to obtain a controlling stake in the firm.
• An acquisition is quite similar to a takeover in that one company will purchase the other; however, usually on a preplanned and orderly manner in which both parties strongly agree if beneficial to both firms.