Encyclopedia > Takeover

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Takeover is a business term referring to one company purchasing another. Such events are similar in nature to mergers, but no new company is formed. The company buying is referred to as the acquirer and the one being purchased as the target.

Corporate takeovers are common in the United States and the United Kingdom. They are extremely rare in Germany because of the dual board structure, in Japan because companies have interlocking sets of ownership known as keirsatus[?] and in the People's Republic of China because most publicly listed companies still are majority owned by the state.

In general there are two forms of takeover. The friendly takeover is a straight buyout of a company, and happens all the time. The shareholders are paid in cash or (more commonly) an agreed on number of shares of the aquirer's company stock.

The hostile takeover is when a company attempts to buy out another whether they like it or not. A hostile takeover is only possible if the shares are traded publicly, as it requires the aquirer to bypass the board of directors and purchase the shares from other sources. This is difficult unless the shares of the target company are widely available and easily purchased (ie, they have high liquidity). Hostile takeovers are also used in a corporate raid.

Another type of takeover is the reverse takeover which is a method of listing a private company while bypassing most securities regulations. In a reverse takeover by which a shell public company buys out a functioning private company whose management then controls the public company.

The target company has several methods to avoid the buyout. These include legal actions, as in the case of the Hewlett-Packard purchase of Compaq, or the use of a poison pill, as was done by Transmeta.

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