Mergers and Acquisition: Understanding Friendly and Hostile Takeovers

MERGERS AND
ACQUISITION

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUTION..............................................................................................................................1
PART 1............................................................................................................................................1
Meaning of friendly and hostile takeovers and adapting with the acquisitions. Meaning of pre
bid and post bid defence and the one suitable for the acquisitions..............................................1
PART 2............................................................................................................................................3
Meaning of city code and CMA..................................................................................................3
PART 3............................................................................................................................................6
Different types of divestments and the one which is appropriate with this acquisition..............6
PART 4............................................................................................................................................7
Selecting the group that is suitable for the acquisition................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUTION
Mergers & acquisition is general term used for describing consolidation of the companies or
the assets by various types of the financial transactions which includes consolidations, mergers
and acquisition, asset purchase and tender offers. Both terms are used interchangeably in practice
however have different meanings. When a company take over other entity and establishes as new
owner of the entity, it is known as acquisition. On the other merger is described where two firms
of similar size and business that join their forces for moving forward as the legal entity instead of
operating individually. Present report is based over acquisition by Mitchells & Buttlers plc of JD
wetherspoon plc. Report will explain meaning of hostile and friendly takeover and adapting with
this acquisition. Meaning of pre bid and post bid defence are also explained. Explanations on city
code and CMA will be provided looking at target company. Report will further provide about
different types of divestments and the type which is most appropriate for above acquisition.
PART 1
Meaning of friendly and hostile takeovers and adapting with the acquisitions. Meaning of pre bid
and post bid defence and the one suitable for the acquisitions.
Companies generally grow and expand by taking over small competitors, acquisitions or
by merging with competitors. Takeover refers to the purchase of company by other company.
Whether takeover is hostile or friendly resulting transactions result in merger of two companies
in one. Public companies require approval of board of directors and shareholders for getting the
deal done. If managers of company are against acquisitions acquiring company could make
efforts for winning deal through hostile measures.
Hostile Takeovers
Hostile takeover occur when one entity, acquiring entity attempt at taking over other
entity, target company without agreement of board of directors of target corporation. In simple
words in this type of takeover management of the entity is not consulted and the direct offers are
given to the shareholders without knowledge of the management. There may be case where
management has rejected offer of bidding company and bidder is pursuing direct deal with the
shareholders of entity.
In hostile takeovers, directors of the target company are not in side with directors of
acquiring company. In such circumstances acquiring company offers to pay shareholders of
target company for shares known as tender offer (Loyola and Portilla, 2016). If sufficient
1

shares are acquired company could then approve the merger or can also appoint own directors
and the officers who will be running target company as subsidiary. Process occurs over
opposition of management of target company and usually leads to tension between management
of target company and of acquirer. Several strategies are put in place for staving off hostile
takeover including greenmail, poison pills and white knight defence.
Friendly takeovers
In friendly takeovers, company is informed before bidding company put an offer.
Management of company have sufficient time for evaluating takeovers terms of the entity. If that
is found in better interest of the stakeholders and is wealth maximisation is projected of the
shareholders, management supports offering price to the shareholders. Private company takeover
is friendly as there is no difference between directors and shareholders. Main reason is
management have full control over equity of company and therefore bidder cannot bid without
the consent of management. Friendly takeovers occur when one company acquire other company
with the directors approving transactions. The takeovers of this type are generally seen however
hostile takeovers are also becoming popular these days with risk of the activist hedge funds
(Loyola Fuentes and Portilla, 2016). In Friendly merger, assets and shares of surviving company
are acquired with approval of the shareholders and directors. Other entity ceases to exist as
independent entity.
As per given scenario as the board of directors of both the companies are accepting the deal
for acquisition it will be considered as friendly merger. Mitchells & Buttlers is not approaching
the shareholders only for bidding but management also who have agreed for acquisition of JD
wetherspoon plc. The management is not in opposition of acquirer company and is agreed by the
management for the growth and expansion of the business.
Meaning of pre bid and post bid defence
Pre Offer defence
Pre offer bid is the general term for the broad group of the defensive strategies used in
transactions for Mergers and acquisitions. Pre offer defence is the pre-emptive strategy which is
undertaken by target company for protecting itself from possible offers for bid from proposed
acquirer in hostile takeover. Pre bid mechanism is opted before offer is made to target entity.
They are created at the initial stage which is mentioned in company documents related to the
mergers & acquisitions. Pre offer defence strategies are adopted for minimising probability of the
2