Most takeovers of companies are agreed by their respectiveboards of directors. A company will typically make an offerfor all of the shares of another company, and ask its directorsto recommend the offer to their shareholders. If the directorsrecommend the offer, and the shareholders agree with theprice, the takeover will go ahead.
However, sometimes acompany's directors may feel that a takeover bid undervaluesthe shares, and so do not recommend the offer to shareholders.The bidding company could always drop the bid and walkaway. But if it wants to press on, it can instead approach theshareholders directly and offer to buy their shares.
If thebidding company can buy up a controlling stake in the targetcompany, it can then force the remaining shareholders tosell up, and thus take over the whole company.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The targetcompany will often try to defend itself by promising to makeshareholders better off with a new strategy. Very occasionally,it even tries to buy the bidding company this is known as apac-man' defence.
-
The top stocks in the FTSE 100After a year of strong returns for the UK’s flagship index, which FTSE 100 stocks have posted the best performance in 2024?
-
A junior ISA could turn your child’s pocket money into thousands of poundsPersuading your child to put their pocket money in a junior ISA might be difficult, but the pennies could quickly grow into pounds – and teach them a valuable lesson about money
