What is a Takeover?

Submitted by Marco on 24 June, 2008 - 23:36

The financial media at times publishes news about takeovers. Learn what is a takeover?

A takeover is business jargon meaning the purchase of a company (the takeover target) by another company (the bidder or acquirer). Usually, as larger companies are usually public companies listed on a trading stock exchange, takeover also means the acquisition of these types of companies. You can have hostile takeovers, friendly takeovers and reverse takeovers.

Why do Company's Takeover Other Companies?

Company's like to take over other companies for many reasons. Small companies may become a takeover target if they fill a niche in the market that the bidder operates within. This is especially the case if the smaller company have proven their profitability. The larger company may see synergistic needs or other potential with the smaller such as sharing resources and cutting costs. Taking over other companies may also be another avenue for larger acquiring companies to grow their company. Another reason for a company takeover is for companies seeking finance to grow their products which have high demand may attract the attention for an acquisition.

Advantages and Disadvantages of a Takeover

There are many advantages and disadvantages of a takeover. They also depend on which perspective you are looking at. Fore example, job cuts as a result of a takeover is a disadvantage to the employee but an advantage to the company in terms of the bottom line. Other advantages: Increased sales and revenue, increased market share and economies of scale. A decrease in competition (assuming the companies are in the same industry) and reduction of overcapacity in the industry. Disadvantages include: reduced competition and choice for consumers (double edged sword - good for the company, bad for consumers), job cuts (as explained before), hidden liabilities and the cost of a takeover to the bidding company.

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