“Friendly” Takeover Tactics

In friendly takeovers, the target board and management supports bid.

Friendly takeovers can be started by both the target or the acquiring company:

  • If the acquiring company starts the takeover, it starts by selecting an investing bank or intermediary, contacting the target company and setting a start point for negotiation.
  • If the target company starts the takeover, it starts by clarifying its motivation to be sold, looking for a good buyer and starting negotiation.

In this friendly processes negotiation is the key to solve conflicts. Potential acquirer obtains support from the target’s board and management early in the takeover process before proceeding to a negotiated settlement. The acquirer and target firms often agree do not to make any further investments for a fixed period, in exchange of fee for the target firm.

Letter of intent (LOI)

After starting negotiation, when companies are clearly interested in the merger, they should write a letter of intent, which is a document which include a summary of the reached agreements that will be the starting point to the final agreement.

The LOI is a guarantee to avoid negotiation with other companies.

Why Friendly acquisitions fail

The main reasons for a failure acquisition are:

  • The acquiring company does not understand correctly the target company’s  operation.
  • A non-objective valuation.
  • Do not have the right legal advise.
  • Negotiating fast.
  • Do not performance a complete audit.
  • Lack of control over the company advisors.
  • Lack of availability of the target board.
  • Do not verifying if the target company faces its payments.
  • Conclude the operation before the real end.
  • Do not consider the stakeholder (stockholders, clients, suppliers, workers…) interests.

En colaboración la Dra. Inés Martín de Santos.