An aquisition involves gaining control over another firm, usually through the purchase of shares of the company or to buy assets of the business directly.Īn acquisition may involve a takeover where one firm buys out another, often against the wishes of certain taxpayers.

Sainsbury’s – rejected offer at 600p, but now trading below that.Īcquisitions is another very similar term to describe a takeover.

This makes it more attractive to a takeover because another firm may feel they can turn it around. If a firm is badly run with much potential, this may be reflected in the share price.

1999 Vodafone bought German internet and phone company Mannesmann – the deal was worth $172 billionįirms which are trading at a low value compared to potential may be vulnerable to a takeover.

2000 America Online (AOL) merged with Time Warner Inc – worth $112.1 billion.

The takeover by Carlsberg PLC of Holsten.

The new firm may not experience economies of scale, but diseconomies of scale.

Increased market share in oligopoly markets can lead to less choice and higher prices for consumers.

The takeover may create resentment and job losses which reduce morale in the new firm.

The firm taken over may resent being bought out by a more powerful firm who doesn’t understand the culture of the existing firm.

strip off useful, valuable assets and then close down less attractive parts leading to job losses.

Takeovers may be done to ‘cherry-pick’ a firm.

For example, this is important for pharmaceutical firms which engage in much risky investment.

Greater profit may enable more investment in research and development.

The new firm may benefit from economies of scale and share knowledge.

Enable dynamic firms to takeover inefficient firms and turn them into a more efficient and profitable firm.

When a firm buys out another firm in another industry, e.g. When a firm buys another firm at a different stage of production, e.g. Tesco buying out a smaller supermarket like the Co-op When two firms at the same stage of production merge into one, e.g.

Sometimes, firms will buy increasing quantity of shares on the open market to gain more control of the firm by stealth.

For example, they can appeal to the majority of shareholders to sell directly to them so that they can get control over the firm. Hostile takeoverĪ hostile takeover occurs when the managing board of the target firm rejects the takeover bid, but, the acquiring firm pursues the takeover anyway. If the board agrees the takeover represents could value for shareholders they will recommend shareholders take advantage of the takeover. In a friendly takeover, the bidding firm approaches a firms managing board to make an offer for the target firm.

A successful takeover will lead to an effective merger and the new firm having a greater market share.

Takeovers can be classed as friendly or hostile.

A takeover occurs when one firm (acquiring) buys another firm (target).

What is a hostile takeover