TYPES OF TAKEOVER
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TYPES OF TAKEOVER
I. LEGAL CONTEXT
From legal perspective , takeover is of three types:
- Friendly takeover
- Bail out takeover
- Hostile takeover
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Friendly or Negotiated Takeover:
Friendly takeover means takeover of one company by change in its management & control through negotiations between the existing promoters and prospective invester in a friendly manner. Thus it is also called Negotiated Takeover. This kind of takeover is resorted to further some common objectives of both the parties. Generally, friendly takeover takes place as per the provisions of Section 395 of the Companies Act, 1956. -
Bail Out Takeover
Takeover of a financially sick company by a financially rich company as per the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 to bail out the former from losses. -
Hostile takeover:
Hostile takeover is a takeover where one company unilaterally pursues the acquisition of shares of another company without being into the knowledge of that other company. The most dominant purpose which has forced most of the companies to resort to this kind of takeover is increase in market share. The hostile takeover takes place as per the provisions of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.
II. BUSINESS CONTEXT
In the context of business, takeover is of three types:
- Horizontal Takeover: Takeover of one company by another company in the same industry. The main purpose behind this kind of takeover is achieving the economies of scale or increasing the market share. E.g. takeover of Hutch by Vodafone.
- Vertical takeover: Takeover by one company of its suppliers or customers. The former is known as Backward integration and latter is known as Forward integration. E.g. takeover of Sona Steerings Ltd. By Maruti Udyog Ltd. is backward takeover. The main purpose behind this kind of takeover is reduction in costs.
- Conglomerate takeover: Takeover of one company by another company operating in totally different industries. The main purpose of this kind of takeover is diversification.
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