The Basis Of Valuation
ompany decides to take over the company whose shares you own, you will be wooed to sell your shares. The company being taken over is called the 'target company', and the company seeking to take it over is called a 'predator'.
A takeover is either friendly (the target company agrees) or hostile (the target company does not agree). Sometimes more than one predator may be trying, which is known as a contested takeover bid.
The usual reason for a takeover is that the target company is seen as not fully using its potential. The management is seen as poor. You will either be offered cash for your shares, or shares in the predator company in exchange, or both. Sometimes you are given a choice.
If the takeover is contested, you will be bombarded with emails leaflets and brochures telling you why you should/should not accept the offer because the predator company is/is not better equipped to run the target company. There will often be advertisements in the financial press and plenty of news coverage.
Many of these ebrochures are works of literature in the way in which they use the same facts to produce opposite conclusions.
Human ingenuity is rarely so thoroughly exercised as when defending a takeover bid. The many defences are known by colourful names such as: white knight, Pac-man strategy, shark repellant, poison pills, crown jewels, sandbag, Lady Macbeth strategy, etc. These are explained in the glossary.
A takeover usually pushes up the price of the target company's shares markedly, and may also increase the predator's share price.
It is rare that the private investors'decisions make much difference to the outcome (the famous fight over Westland Helicopters was an exception). The private investor is usually best advised to wait until the last minute (by which time the original offer is likely to have improved) and go with the crowd. And en
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