28/04/2003

Most firms perform mergers and acquisitions not very often, thus they do not have great experience in this phenomenon. Hence an acquiring firm employs advisers in order to help them identify firstly suitable targets, then appraise them and finally make a takeover bid. The analysis of the target company would include some elements about profit of the firm, sales, assets and liabilities and of course the abilities of the working force.

Now in that the case the appraisal is satisfactory for the acquiring firm, it approaches the target and begins the negotiation to decide the price and the form of the payment. “In most cases the acquirer has to offer a bid premium. This tends to be in the range of 20 per cent to 100 per cent of the pre-bid price. The average is about 30-50 per cent” (Glen Arnold, Corporate Financial Management, p.870).

However if an agreement cannot be reached and the acquirer still wishes to proceed, a hostile bid battle is created. The acquirer may act quickly and buy the shares of the target at a price relatively close to the stock market, leaving the management of the target firm unable to respond in time. This is something opposite to the spirit of the Takeover Panel’s rules, which regulates now that only a certain percentage can be acquired in a limited time period.

Afterwards in both cases, either in a friendly or a hostile bid, the acquiring company has to inform the target’s board and its advisers for the bid that will be made. At the same time the target firm informs their shareholders through an announcement in the Stock Exchange and in the Press, explaining the reasons for the process. Both companies have to inform their shareholders who under certain circumstances are able to vote in favour or against the merger process. The offer remains open for a certain amount of time from the date of the offer and the target firm has to decide for a positive or a negative reaction.

Finally when the acquirer has agreed to buy or has bought 50 per cent of the target’s shares the offer becomes unconditional. This means that before the offer becomes unconditional the target shareholders may accept to sell their shares, but also have the right to withdraw their decision. Buy after the offer has become unconditional the bidder, i.e. the acquiring firm, shows that no better offer will follow. So the target shareholders are not allowed to withdraw their acceptance for the selling of their shares and the process is fulfilled, unless no unconditional offer has been made.