Definition of Takeover

Takeover

General term referring to transfer of control of a firm from one group of shareholder's to another
group of shareholders.

takeover

the acquisition of managerial control of the corporation
by an outside or inside investor; control is achieved
by acquiring enough stock and stockholder votes to control
the board of directors and management

CARs (cumulative abnormal returns)

a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock.
This is typically used in control and takeover studies, where stockholders are paid a premium for being taken over. Starting some time period before the takeover (often five days before the first announced bid, but sometimes a longer period), the researchers calculate the actual daily stock returns for the target firm and subtract out the expected market returns (usually calculated using the firm’s beta and applying it to overall market movements during the time period under observation).
The excess actual return over the capital asset pricing model-determined expected return market is called an ‘‘abnormal return.’’ The cumulation of the daily abnormal returns over the time period under observation is the CAR. The term CAR(-5, 0) means the CAR calculated from five days before the
announcement to the day of announcement. The CAR(-1, 0) is a control premium, although Mergerstat generally uses the stock price five days before announcement rather than one day before announcement as the denominator in its control premium calculation. However, the CAR for any period other than (-1, 0) is not mathematically equivalent to a control premium.

markup

the period after an announcement of a takeover bid in which stock prices typically rise until a merger or acquisition is made (or until it falls through).

runup

the period before a formal announcement of a takeover bid in which one or more bidders are either preparing to make an announcement or speculating that someone else will.

Event risk

The risk that the ability of an issuer to make interest and principal payments will change because
of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural
or industrial accident or some regulatory change or (2) a takeover or corporate restructuring.

Golden parachute

Compensation paid to top-level management by a target firm if a takeover occurs.

Greenmail

Situation in which a large block of stock is held by an unfriendly company, forcing the target
company to repurchase the stock at a substantial premium to prevent a takeover.

Nationalization

A government takeover of a private company.

Pac-Man

strategy takeover defense strategy in which the prospective acquiree retaliates against the
acquirer's tender offer by launching its own tender offer for the other firm.

Poison pill

Anit-takeover device that gives a prospective acquiree's shareholders the right to buy shares of the
firm or shares of anyone who acquires the firm at a deep discount to their fair market value. Named after the
cyanide pill that secret agents are instructed to swallow if capture is imminent.

Shark repellant

Amendment to company charter intended to protect it against takeover.

Standstill agreements

Contracts where the bidding firm in a takeover attempt agrees to limit its holdings
another firm.

Target firm

A firm that is the object of a takeover by another firm.

Targeted repurchase

The firm buys back its own stock from a potential bidder, usually at a substantial
premium, to forestall a takeover attempt.

Watch list

A list of securities selected for special surveillance by a brokerage, exchange or regulatory
organization; firms on the list are often takeover targets, companies planning to issue new securities or stocks
showing unusual activity.

acquisition

takeover of a firm by purchase of that firm’s common
stock or assets.

proxy contest

takeover attempt in which outsiders compete with management for shareholders’ votes. Also called proxy fight.

shark repellent

Amendments to a company charter made to forestall takeover attempts.

tender offer

takeover attempt in which outsiders directly offer to buy the stock of the firm’s shareholders.

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