AFM Presentation on Business Takeovers PPT

In business, a takeover is the purchase of one company by another. In the UK, the term refers to the acquisition of a public company whose shares are publicly listed, in contrast to the acquisition of a private company.

1. AFM Presentation by Group 1
BUSINESS TAKEOVERS
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2. What is Takeovers?
Advantages & Disadvantages
Forms of Consideration
Regulations
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CONTENTS

3. WHAT IS
TAKEOVERS
A business takeover is when one
company gains control of another—
typically by buying a majority of its
shares or assets.
In essence, the acquiring company
(the “acquirer”) effectively assumes
control over the target company’s
operations and strategic direction.
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4. Examples of Takeovers
Google's
Acquisition of
Android: Google
acquired Android
for $50 million in
2005.
Facebook's
Acquisition of
WhatsApp:
Facebook acquired
WhatsApp for $19
billion in 2014.
Reliance Retail
acquisition of
Future Group’s
businesses for
₹24,713 crore
Walmart
acquisition of
Flipkart: Walmart
acquired a 77%
controlling stake in
Flipkart for $16
billion.
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5. REASONS FOR TAKEOVERS
Market Expansion: Business
takeovers can provide
companies with immediate
access to new markets,
facilitating growth
opportunities and enhanced
competitive positioning
within those markets.
Resource Acquisition:
Acquiring another business
allows a company to gain
valuable resources,
including technology,
expertise, and workforce,
which can lead to increased
efficiency and innovation.
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6. RELIANCE &
FUTURE GROUP
TAKEOVER
More Stores: Acquired over 200 outlets (like Big
Bazaar) to quickly grow across India.
Online & Offline: Connected physical shops
with the JioMart app for easy shopping.
New Areas: Reached smaller cities to attract
more customers.
Good Locations: Secured long-term deals for
popular retail spaces.
Efficient System: Gained an already set-up
supply and delivery network.
Trusted Brands: Inherited well-known names
that customers already like.
Better Deals: More stores mean better
negotiating power with suppliers.
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7. REASONS FOR TAKEOVERS
Talent Acquisition: Sometimes the primary motive is to gain top-notch human capital. A
company may acquire a smaller firm mainly to hire its skilled team, rather than for its products
or market presence.
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Synergy Creation: By combining operations, companies can reduce costs (for example, by
eliminating duplicate functions) or boost revenues through cross‑selling and improved
coordination—achieving a whole that’s greater than the sum of its parts.
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Eliminating Competition: Acquiring a rival can strengthen a company’s competitive position
by reducing market competition, which may eventually allow for better pricing power.
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Vertical Integration: A firm might take over suppliers or distributors to streamline its supply
chain, secure consistent quality, and lower production or distribution costs.
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Diversification: To spread risk, a company might buy into a new industry or product line that’s
different from its core business, thereby balancing its revenue streams across different
markets.
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8. IMPACT ON
STAKEHOLDERS
Shareholders may gain from
higher valuations, employees
might experience job insecurity or
layoffs, customers could see
changes in product quality or
services, and suppliers may
negotiate new contracts
reflecting the new company's
strategy.
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9. TYPES OF TAKEOVERS
Friendly Takeover:
The target
company's board
of directors
approves the
acquisition.
Reverse Takeover:
A private company
acquires a public
company to
become publicly
traded without
going through an
IPO
Hostile Takeover:
Acquiring a
company without
the consent of its
management.
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10. TYPES OF
TAKEOVERS
Bailout Takeover: A
healthy company
acquires a struggling
company, often with
the approval of
lenders.
Management
Buyout: Company’s
existing
management
purchases part or
all of the business.
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11. ADVANTAGES
Quick Growth: A takeover can instantly expand a company’s market share
and customer base.
New Markets: It gives access to new geographic regions or product lines
without starting from scratch.
Access to Expertise and Technology: The acquirer can benefit from the
target’s skills, technology, and intellectual property.
Cost Savings: Combining operations can lead to economies of scale—
reducing duplicate costs and increasing efficiency.
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12. ADVANTAGES
Reduced Competition: Acquiring a competitor helps
lessen market competition.
Diversification: It allows a company to enter new
industries or areas, spreading risk and creating new
revenue streams.
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13. ADVANTAGES
Tax Benefits: Certain takeovers can offer tax advantages—
such as loss carryforwards or more favorable corporate tax
structures—that enhance overall financial performance.
Diversification of Risk: Merging with or acquiring a firm in a
related market helps diversify revenue streams, reducing
the risk associated with dependence on a single product or
market.
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14. DISADVANTAGES
High Costs: Acquiring companies often pay a premium for the
target’s shares, which can strain finances and impact future
profitability.
Integration Challenges: Combining different systems, cultures, and
management styles can lead to disruptions and inefficiencies.
Risk of Overpayment: There’s a risk that the acquirer might
overestimate the target’s value or potential synergies, leading to poor
returns on investment.
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15. DISADVANTAGES
Employee and Stakeholder Resistance: Takeovers can create
uncertainty among employees and other stakeholders, sometimes
causing morale issues or talent loss.
Operational Disruptions: The process of merging two companies can
distract management from core activities, potentially affecting day-
to-day operations.
Increased Debt Load: If the acquisition is financed with significant
borrowing, it can burden the new entity with high debt, making it
vulnerable to economic fluctuations.
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16. Cash: In a cash offer, the target company shareholders
are offered a fixed cash sum per share. This method is
likely to be suitable only for relatively small acquisitions,
unless the bidding entity has an accumulation of cash.
Share Exchange: In a share exchange, the bidding
company issues some new shares and then exchanges
them with the target company shareholders. The target
company shareholders therefore end up with shares in
the bidding company, and the target company's shares
all end up in the possession of the bidding company.
FORMS OF CONSIDERATION IN TAKEOVERS
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17. FORMS OF
CONSIDERATION
IN TAKEOVERS
Mixed Offer: In some cases, to
reduce the disadvantages of
the cash offer and share
exchange individually and to
try to deliver advantages to all
shareholders no matter what
their current circumstances, a
mixture of cash and shares will
be offered.
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18. FORMS OF
CONSIDERATION
IN TAKEOVERS
Earn-out: An earn-out is
a deal structure used in
business takeovers where
part of the purchase price
is paid later, based on the
future performance of the
acquired company. In
other words, the seller
agrees to receive
additional payments if
the business meets
certain performance
targets—like revenue or
profit goals—after the
acquisition.
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19. REGULATIONS
The regulation of takeovers is designed to ensure that during a
takeover bid, all actions are fair, transparent, and in the best
interest of shareholders.
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20. REGULATIONS
Directors' Duties: At a critical time—when a takeover bid is on the
table—directors must prioritize the interests of their shareholders over
any personal gains.
Equal Treatment: Every shareholder should be treated equally. No
group should receive preferential treatment over another.
Full Disclosure: Shareholders must receive all the necessary and
relevant information to make an informed decision. This includes
clear details on the bid, financial forecasts, and any assumptions or
accounting policies used.
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21. REGULATIONS
Shareholder Approval: The board is generally restricted from taking
significant actions on its own that could thwart or unfairly influence
the takeover process; major decisions usually require shareholder
consent.
High Standards of Accuracy: All information provided must be
prepared with utmost care and accuracy. This involves rigorous
examination and reporting by accountants, as well as independent
valuations of assets to support the bid.
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22. REGULATIONS
Squeeze-Out Rights
Allow the bidder to force minority shareholders to sell their shares at a
fair price once a certain equity threshold (typically 80%-95%) is
reached.
Enables the acquirer to secure a 100% stake and avoid future
complications with minority interests.
Mandatory-Bid Condition (Sell-Out Rights)
Requires the bidder to offer remaining shareholders a fair exit price
when a specific share threshold is met.
The offer must match or exceed the highest price previously paid,
protecting minority shareholders from potential exploitation.
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23. CONCLUSION
Business takeovers are a key strategy for
companies seeking rapid growth and
increased competitiveness. They offer the
potential to quickly enter new markets,
access innovative technologies, and
consolidate market share, often providing
significant advantages over organic
growth. However, takeovers also come
with risks, including high acquisition
costs, integration challenges, and
potential cultural clashes between
organizations. Successful takeovers
require thorough due diligence, clear
strategic alignment, and careful planning
to manage both the immediate and
long-term impacts on operations and
stakeholders.
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24. THANK YOU
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