what is takeover

What is a Takeover?

Learn about Takeovers with Anil Kapoor
Humko Deewana Kar Gaye 2006

Movie Case Study

The scene shows Mr. Karan Oberoi (played by Anil Kapoor) networking with different businessmen from varied industries. Mr. Mittal congratulates Mr. Oberoi for marrying Jia Yashwardhan (played by Katrina Kaif). She is the daughter of a steel tycoon. Mr. Mittal says to Oberoi that ‘you have taken over the steel industry and must be very proud’.

While Karan Oberoi has different plans and wants to take over Mr. Mittal’s company as well. In this blog, Learning Perspectives will explore the meaning of Takeover.

What is a Takeover?

A takeover occurs when an acquirer company takes control of the target company. An acquirer company is generally a larger company. Takeovers, commonly are a part of mergers and acquisitions. There are many types of takeovers, they can be friendly or hostile.

The acquirer must buy more than 50% (majority shareholding) of the paid-up equity of the acquired company to enjoy complete control. Although effective control can be exercised with a smaller shareholding.

There are many ways for the company to take over, it can be done in the following ways:

Open market purchase

This takes place when the acquirer buys the shares of the listed company in the stock market. , Generally hostile takeovers are initiated in this manner.

Negotiated Acquisition

The acquirer buys shares of the target company from one or more existing shareholders. Most likely these shareholders are the promoter of the company. This takes place through a negotiated transaction.

Preferential Allotment

This allotment is considered a friendly acquisition. It is meant to give the acquirer a strategic stake in the company. The acquirer buys the shares of the company through a preferential allotment of equity shares. This helps infuse funds into the company.

Anti-Takeover defences in India include the following:

Searching for a White Knight

A company that is in danger, may look out for friends who can help them in this dire situation.

Selling the Crown Jewel

If a company is tempted by a certain valuable asset of the target company, the target company can sell these assets to make itself unattractive.

Amalgamate group companies

Two or more companies that are prompted by the same group may be amalgamated to form a larger company. A larger company is relatively less vulnerable to threats as compared to a smaller company.

Effect Creeping Enhancement

The promoter group can raise its equity holdings by creeping enhancements, subject to limits, without invoking the provisions to make an open market offer.

Recent Takeover

Reliance retail took over the future group, popularly known as Big Bazaar. According to a business today report, Reliance’s takeover began with utmost stealth when its staff began arriving at Future stores. Many in Future group’s management were in the dark about the plans as store employees from all over the country frantically began to call, according to people with direct knowledge of the matter.

Reliance was attracted to the crown jewel (stores of the big bazaar) of the future group. This would be considered a hostile takeover.

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