what is a takeover 
a takeover occurs when one company makes a successful bid to assume control of or acquire another takeovers can be done by purchasing a majority stake in the target firm takeovers are also commonly done through the merger and acquisition process in a takeover the company making the bid is the acquirer and the company it wishes to take control of is called the target takeovers are typically initiated by a larger company seeking to take over a smaller one they can be voluntary meaning they are the result of a mutual decision between the two companies in other cases they may be unwelcome in which case the acquirer goes after the target without its knowledge or some times without its full agreement in corporate finance there can be a variety of ways for structuring a takeover an acquirer may choose to take over controlling interest of the company s outstanding shares buy the entire company outright merge an acquired company to create new synergies or acquire the company as a subsidiary fangxianuo getty imagesunderstanding takeoverstakeovers are fairly common in the business world however they may be structured in a multitude of ways whether both parties are in agreement or not will often influence the structuring of a takeover keep in mind if a company owns more than 50 of the shares of a company it is considered controlling interest controlling interest requires a company to account for the owned company as a subsidiary in its financial reporting and this requires consolidated financial statements 1 a 20 to 50 ownership stake is accounted for more simply through the equity method 2 if a full on merger or acquisition occurs shares will often be combined under one symbol types of takeoverstakeovers can take many different forms a welcome or friendly takeover will usually be structured as a merger or acquisition these generally go smoothly because the boards of directors for both companies usually consider it a positive situation voting must still take place in a friendly takeover however when the board of directors and key shareholders are in favor of the takeover takeover voting can more easily be achieved usually in these cases of mergers or acquisitions shares will be combined under one symbol this can be done by exchanging shares from the target s shareholders to shares of the combined entity an unwelcome or hostile takeover can be quite aggressive as one party is not a willing participant the acquiring firm can use unfavorable tactics such as a dawn raid where it buys a substantial stake in the target company as soon as the markets open causing the target to lose control before it realizes what is happening the target firm s management and board of directors may strongly resist takeover attempts by implementing tactics such as a poison pill which allows the target s shareholders to purchase more shares at a discount to dilute the potential acquirer s holdings and voting rights a reverse takeover happens when a private company takes over a public one the acquiring company must have enough capital to fund the takeover reverse takeovers provide a way for a private company to go public without having to take on the risk or added expense of going through an initial public offering ipo a creeping takeover occurs when one company slowly increases its share ownership in another once the share ownership gets to 50 or more the acquiring company is required to account for the target s business through consolidated financial statement reporting 1 the 50 level can thus be a significant threshold particularly since some companies may not want the responsibilities of controlling ownership after the 50 threshold has been breached the target company should be considered a subsidiary creeping takeovers may also involve activists who increasingly buy shares of a company with the intent of creating value through management changes an activist takeover would likely happen gradually over time the ownership threshold for controlling vs non controlling ownership reasons for a takeoverthere are many reasons why companies may initiate a takeover an acquiring company may pursue an opportunistic takeover where it believes the target is well priced by buying the target the acquirer may feel there is long term value with these takeovers the acquiring company usually increases its market share achieves economies of scale reduces costs and increases profits through synergies some companies may opt for a strategic takeover this allows the acquirer to enter a new market without taking on any extra time money or risk the acquirer may also be able to eliminate competition by going through a strategic takeover there can also be activist takeovers with these takeovers a shareholder seeks controlling interest ownership to initiate change or acquire controlling voting rights companies that make attractive takeover targets include funding takeoversfinancing takeovers can come in many different forms when the target is a publicly traded company the acquiring company can buy shares of the business in the secondary market in a friendly merger or acquisition the acquirer makes an offer for all of the target s outstanding shares a friendly merger or acquisition will usually be funded through cash debt or new stock issuance of the combined entity 