When you buy a stock, you become a partial owner of that firm and with a gradual increase in the rates of mergers worldwide; it is highly recommended that you have the general idea of what these terms actually mean. Mergers & Acquisitions are usually employed to enhance the stock value of a company and thus increasing its overall market status. The most frequent ways of mergers include:

• Partnership of two firms on a project
• Mutual agreement of joining forces leading to the merger
• Or one company can take over the other by force. This type is the most important of all and is a point of great concern for companies all over.

Elaborated below are some of the most common terms and types used in the mergers and acquisitions.

Hostile Takeover:

As the name signifies, it involves the taking over of a firm by another through force, and it is mostly resisted by the management of the former. These takeovers bring down the morale of the employees of the target firm, leading to a decrease in the functionality of the firm. The raiding firm may also fire a number of employees of the target firm upon take over leading to a great level of animosity among the existing staff.

Dawn Raid:

This action is very common in the United Kingdom, but instances of its occurrences in US are also present. The target company in this case is termed as a “prey” whereas the acquirer is called “predator”. In this scenario, the predator chooses to buy a substantial amount of the target company’s shares, and he has his brokers on the alert as to buy the shares as soon as the stock exchange opens in the morning. Having the brokers do all the dirty work, the acquirer keeps his identity and intent under cover. Since it all happens in the morning, the target firm remains clueless until the major harm is done and the higher stakes are transferred to the acquirer.

Saturday Night Special:

This name is given because of these dealings occurring over the weekends. In this case, a firm makes a public tender offer trying to openly take over another firm. However, this has been banned under the William’s Act in the US and all acquisitions of or over 5% are necessarily reported by the Securities Exchange Commission.

Take over and acquisitions are proclaimed every single day, but it is not necessary that the target would succumb to all these activities. Since every company wants the best for their stocks and values, they have also devised some major means to ward off all such actions. These practices and strategies are usually termed as “Shark Repellants”. Let’s have a look at some of those:

Golden Parachute:

This is a major way of keeping one’s management under control and loyal to one’s self. Unwanted takeovers are flown off by giving extraordinary benefits to the top executives. These may include stock options, bonuses, liberal severance pay and the list goes on. These benefits are worth millions of dollars and could act as an important deterrent for the acquiring company, as paying this much price could be cumbersome.

Greenmail:

A spin off of the term blackmailed and often called “bon voyage bonus” or even the “goodbye kiss”, happens when a huge stock bulk is kept by an unfriendly group that makes the target company buy it again at an ample and huge cost, thus leading to the destruction of any kind of takeover attempt.

Macaroni Defense:

A company releases bonds, which are redeemed at a very higher price pursuant to a take-over. The reason it’s called macaroni defense is that, whenever the company is threatened by an acquirer, its redemption price swells dramatically just like macaroni do after a boil. And this can turn out to be an extremely effective tactic in repelling any acquisition.

People Pill:

In this case, the prior management threatens to resign in the event of an acquisition, making the acquirer think twice about his decision. However, this threat could not be very vital in case the employees are not of very high capabilities or in case of the hostile takeover, because in that situation, most of the employees get fired by the acquirer themselves.

Sandbag:

In this case, the target waits for a friendly company (white knight) to come for their rescue. However, the firm must not stall for too long, or else its own activities would be hindered.

White Knight:

It is that party who takes over the target firm in a friendly gesture to save it from the hostile takeover of the “black knight”. And at the end, this white knight offers the target a gracious way out of the takeover.

Poison Pill:

Through this strategy, the target firm makes its shares less attractive for the acquirer. The types of poison pill include:

• Flip in: in this case, the shares are sold at an extremely discounted price, so as more shareholders could buy them, resulting in the dilution of stocks so the bidder does not have enough stocks to take over the target.
• Flip-over: in this case, the acquirer’s shares are sold at discounted price in the event of the happening of a merger. However, the shares would not be diluted enough obviously if the investors fail to take benefit from this opportunity.
• Suicide pill: it reflects to an extreme decision made by the target firm that may lead to it ultimate demise.

Incoming search terms:

• what happens to shares when a company is taken over
• what happens in a merger
• what happens when a company is taken over
• types of poison
• what happens to shareholders when a company is taken over
• poison
• what happens to share options in a takeover
• what happens in a business merger
• what happens when public company taken over
• takeovers and mergers