Important terms related to mergers and acquisitions

Important Terms Relating To Mergers And Acquisitions

• Takeover
Takeover may be referred to as a corporate activity when a company places a bid for acquiring another company. The company, which intends to take over the target firm makes an offer of the "outstanding shares" in case the target firm is traded publicly.
• Hostile takeover
Is defined as an "unfriendly takeover". Such actions are usually revolted against by the managers and executives of the target firm.
• People pill
Under some circumstances of hostile takeover, the people pill is used to prevent the takeover. The entire management team gives a threat to put in their papers if the takeover takes place. Using this strategy will work out provided the management team is very efficient and can take the company to new heights. On the other hand, if the management team is not efficient, it would not matter to the acquiring company if the existing management team resigns. So, the success of this strategy is quite questionable.
• Sandbag
Sandbag is referred to as the process by which the target firm tends to defer the takeover or the acquisition with the hope that another company, with better offers may takeover instead. In other words, it is the process by which the target company "kills time" while waiting for a more eligible company to initiate the takeover.
• Shark Repellent
There are instances when a target company, which is being aimed at for a takeover resists the same. The target firm may do so by adopting different means. Some of the ways include manipulating shares as well as stocks and their values. All these attempts of the target firm resisting its acquisition or takeover are known as shark repellent.
• Golden parachute
Is yet another method of preventing a takeover. This is usually done by extending benefits to the top level executives lest they lose their portfolio/jobs if the takeover is effected. The benefits extended are quite lucrative.
• Raider
May be referred to an acquiring company, which is always on the look out for firms with undervalued assets. If the company finds that a company (target) does exists whose assets are undervalued, it buys majority of the shares from that target company so that it can exercise control over the assets of the target firm.
• Saturday Night Special
Saturday Night Special is referred to as an action of the corporate companies, whereby one company makes an attempt to takeover another company all of a sudden by executing a public tender offer. The name is derived from the fact that such attempts were made towards the weekends. However, such practices have been stopped as per Williams Act. It has now been obligatory that if a company acquires more than 5% of stocks from another company, this has to be reported to the SEC or the Securities Exchange Commission.
• Macaroni defense
This is referred to the policy wherein a large number of bonds are issued. At the same time the target company also assures people that the return on investment for these bonds will be higher with the takeover has taken place. This is another strategy embraced by the target firm for not succumbing to the pressures of the acquiring company.