Discussing Mergers and Acquisitions, today’s word represents the majority of all acquisitions. Though the media often presents the image of a takeover happening when mega-corporations discuss hundred-billion dollar deals in plush boardrooms to crush the competition, which is an easy image to perpetuate with $4.7 trillion worth of takeovers globally in 2016, takeovers in the real world are often much more mundane.
But before getting into the details, let’s look at the word itself.
Takeovers, in the business sense, have likely existed for nearly as long as businesses themselves, though the word itself originates from only 1917.
Initially, ‘the act of taking over something’ used the separated verb phrase ‘take over’ (circa 1884), before the words were finally combined in the late 1950s, as the term began to specifically refer to corporate events. The term is to be first attested in print in 1936 in the sense of ‘the assumption of control or ownership of one company by another, esp. by the acquisition of the majority of its shares’ in an Economist article, stating that: “The assets purchased from the Ebbw Vale Company as a whole have, during the eight and a half months since the date of take-over, earned a gross profit sufficient to twice cover the bank interest on the purchase price”, and takeover to appear first in 1951, in The Winnipeg Free Press: “Prices recently had moved higher on rumours of takeovers and mergers with several companies mentioned”.
Takeovers normally occur due to a potential advantage being obtained by adding another company, such as a particular innovation adding value to a current product, a strong presence in a particular region or industry, or particular products in development (as with technology and pharmaceuticals).
While the term being used negatively – as with the hostile takeover – may be prevalent, the majority of takeovers are actually friendly. Though it may seem odd that a smaller company would want to be taken over by a larger company, it can offer advantages: for example, a larger company may be able to offer more money for product development or possibly better rates for debt refinancing.
Still, there are hostile takeovers, which is a situation where a company tries to take over another company (without its consent) through measures such as buying a controlling interest in the target company’s stock, where the latter could make use of existing corporate defence measure, such as macaroni defense, poison pill and golden parachute.
Given, it is essentially like buying something from someone who doesn’t want to sell it, but, more often than not, this is likely the result of an inability of the companies to agree to takeover terms mutually.
Finally, as stated before, though the value of 2016 takeovers totalled $4.7 trillion, most takeover deals are relatively small; however, in the last 2 decades, there have been some giant takeover deals, notably RBS Group’s $95.6 billion purchase of ABN AMRO in 2007, Verizon Communications’ purchase/repurchase of Vodafone’s 45% stake in Verizon Wireless for $130 billion in 2013, and the biggest, Vodafone’s 1999 purchase of German tech company Mannesmann for $172 billion.
