Understanding Merger and Acquisition and Takeovers

Business

Merger and acquisition takeovers can be complex to many people, especially those who are not in business. When you hear terms like shark repellent, dawn raid, golden parachute and poison pill, it may seem like something that came out of a movie, but it is not. It is actually the world that business owners have to deal with when it comes to mergers, takeovers and acquisitions. When you own stock in a certain company, it means that you are co-owner and as companies choose to consolidate, we see more mergers and acquisitions on the table. Therefore, it is essential to know the meaning of these terms for your company holdings.

The Competitive Strategy

For centuries, mergers and acquisitions, and business takeovers have always been a part of the business industry. In the economic environment that we find ourselves, business owners are oftentimes confronted with the decision to merge their company in order to maximize the value of the shareholder. Mergers and acquisition allows companies to create competitive strategies to take advantage of these values.

Uniting Efforts or Taking Over

There are multiple ways that companies can work to unite their efforts. Some companies choose to partner on a specific project by merging their resources. Some companies will want to fully acquire another company without any involvement from the company. In this case, the company would take over the other company’s operation and that will include the incurred debt and the company’s holdings. Sometimes, the new company will choose to replace personnel and bring in their own. It is this type of takeover that is the starting place for all the complex jargon of shark repellent, dawn raid, golden parachute and poison pill.

Dawn Raid Strategy

Dawn raid is most common in countries like the United Kingdom. The term is used during a corporate act where an investor or firm has the intention of purchasing a significant holding in the equity of the targeted takeover company. The corporation will use a business broker to purchase shares once the stock market becomes opened. In so doing, the corporation will hide its identity from the takeover company.

Poison Pill Strategy

The Poison Pill strategy, the target company has the intention of reducing the attractiveness of its stock to the acquirer of the business. However, there are two different kinds of poison pills. One is the flip in poison pill strategy when the company makes allowance for the current shareholders giving them a discount on shares. This makes the takeover bid harder to acquire and more expensive. The flip over poison pill strategy gives stockholders the right to purchase shares owned by the acquirer at a discounted price, especially when there is a merger.

Golden Parachute Strategy

This strategy will oftentimes not encourage a takeover that is unwanted. In doing so, the company offers lucrative benefits to existing top executives who might not have a job after the takeover has been completed. This strategy could be worth millions and could be expensive for the acquiring company since top executives usually have certain terms written in their contracts such as bonuses, severance pay and stock options.

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