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Simple English definitions for legal terms
corporate takeover
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A quick definition of corporate takeover:
A corporate takeover is when one group takes control of a company from another group. This can happen in a friendly way, where both groups agree to the takeover, or in a hostile way, where one group tries to take over without the other group's permission. The group trying to take over usually offers to buy shares from the other group's shareholders for a higher price than the shares are worth. This can happen for different reasons, like wanting to expand into new industries or getting rid of competition. However, the government has to make sure that the takeover doesn't create a monopoly, where one group has too much control over a certain industry.
A more thorough explanation:
A corporate takeover is when one party gains control of a corporation from another party. There are two types of corporate takeovers: hostile and friendly. In a hostile takeover, the management of the company being taken over does not want to be taken over. In a friendly takeover, the management of the company being taken over agrees to the takeover.
When a party obtains more than 5% of a corporation's outstanding stock, they must file a report with the Securities Exchange Commission (SEC) stating whether they intend to initiate a takeover or not. If they do intend to initiate a takeover, they will release a tender offer to purchase shares from shareholders. This offer is typically above market value to incentivize shareholders to sell. The success of the takeover depends on whether enough shareholders sell their shares.
Takeovers happen for many reasons, including industry diversification, corporate raider attempts, and removal of competition. However, all takeover attempts, hostile or not, must receive clearance from the FTC to ensure that a monopoly will not result.
- Example 1: Company A wants to take over Company B. Company A releases a tender offer to purchase shares from Company B's shareholders. If enough shareholders sell their shares, Company A gains control of Company B.
- Example 2: Company C wants to merge with Company D. Company C and Company D's management agree to the merger, and a shareholder vote is held to determine whether to accept the terms of the merger or not.
These examples illustrate the two types of corporate takeovers: hostile and friendly. In Example 1, Company A is initiating a hostile takeover because Company B's management does not want to be taken over. In Example 2, Company C and Company D are agreeing to a friendly takeover through a merger.