Types of Corporate Takeovers

There are several different types of takeover. The main types are:

• 'Friendly Takeover' - the company bidding will approach the

directors of the other company to discuss and agree an offer before
proposing it to the shareholders of that company.

The bidding company will also have an opportunity to look at the

accounts of the business they want to buy - a process known as
due diligence.

• 'Hostile Takeover' - the company bidding has their offer rejected

or does not approach the board of the company they wish to buy
before making an offer to shareholders.

This also means they will not have access to private information
about the company - increasing the risk of the takeover. Banks are
usually more cautious about lending money for hostile takeovers.

• 'Reverse Takeover' - the final common type of takeover is the

reverse takeover. This happens when a private (not traded on the
stock market) company buys a publicly-traded company as a
means of acquiring public status without having to list itself.

Ajanta Ltd. Wants to acquire the shares of Good Luck Ltd a listed company. The
obligations of the acquirer company under the SEBI takeover code are mentioned
below:

its report, the committee stated the necessity of a Takeover Code on the following
grounds:

• The confidence of retail investors in the capital market is a crucial factor

for its development. Therefore, their interest needs to be protected.
• An exit opportunity shall be given to the investors if they do not want to
continue with the new management.
• Full and truthful disclosure shall be made of all material information
relating to the open offer so as to take an informed decision.
 • The acquirer shall ensure the sufficiency of financial resources for the
payment of acquisition price to the investors.
• The process of acquisition and mergers shall be completed in a time bound
manner.
• Disclosures shall be made of all material transactions at earliest
opportunity.

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 A competitive bid process that is undertaken typically for transactions where price is the
key factor in the purchasing decision. A competitive bid process that is undertaken
typically for higher dollar value and/or complex transactions where factors other than
price will be used to make the final purchasing decision.

The Mandatory Bid requires that any shareholder who either (i) establishes new control
of a firm or (ii) takes over control by transfer of an old block position also extends an
offer for the remaining shares at a fair price. For three different ownership structures, the
paper analyzes the effect of implementation of a Mandatory Bid on the value of the firm.
Implicit in the decision to enact the mandatory bid is a trade-off between a value
increasing (decreasing) change in the frequency of takeovers and a value decreasing
(increasing) effect due to a lower (higher) expected premium. For the ownership structure
where a minority owner establishes now control, we demonstrate the general result that
the negative probability effect dominates the positive premium effect, i.e. the value of the
firm always decreases if a mandatory bid is implemented.