Friendly Takeover Explained: Meaning, Process, and Benefits

Charlene Rhinehart is a CPA and CFE, serving as chair of an Illinois CPA Society committee, holding a degree in accounting and finance from DePaul University.

What Is a Friendly Takeover?

A friendly takeover occurs when the management and board of directors of a target company agree to be acquired by another company, subject to shareholder and regulatory approval.

Key Points to Remember

• A friendly takeover involves mutual consent between the acquiring and target companies.
• Shareholders of the target company must approve the acquisition, often influenced by the offered price per share.
• Regulatory bodies such as the U.S. Department of Justice (DOJ) must also approve the transaction to ensure compliance with antitrust laws.
• This process contrasts sharply with hostile takeovers, where the acquisition is opposed by the target company’s management.

How Does a Friendly Takeover Work?

In a friendly takeover, the acquiring company makes a public offer, usually in cash or stock, which the target company’s board publicly supports. Afterward, shareholders vote to approve the deal, and regulatory authorities review it to prevent monopolistic practices.

While initially friendly, some takeovers may become hostile if the target company’s board or shareholders reject the offer.

The offered price often includes a premium above the current market value to incentivize shareholder approval. This premium reflects the growth potential and valuation of the target company, influencing the success of the takeover.

Illustrative Example: Vonovia and Deutsche Wohnen

In Germany, Vonovia and Deutsche Wohnen are leading real estate companies and competitors. Vonovia first attempted a hostile takeover of Deutsche Wohnen in 2015 with a €14 billion bid, which was rejected. In 2021, Vonovia proposed an €18 billion offer, but Deutsche Wohnen considered it undervalued. After negotiations, Deutsche Wohnen accepted a €19 billion cash offer, resulting in Europe’s largest M&A deal that year. The merger created a company with assets worth €90 billion and control over more than 500,000 properties, exemplifying a successful friendly takeover.

Friendly vs. Hostile Takeover: Key Differences

Friendly takeovers involve agreement and collaboration between both companies’ management and shareholders. In contrast, hostile takeovers occur when the acquiring company bypasses the target’s management and directly appeals to shareholders to gain control.

Types of Takeovers in Business

Business takeovers can take several forms: friendly takeovers, hostile takeovers, reverse takeovers (where a private company acquires a public one), and backflip takeovers (where the acquiring company becomes a subsidiary of the acquired company).

Benefits of a Friendly Takeover

Friendly takeovers offer advantages such as smoother transactions, better valuation for shareholders, cooperative efforts towards shared goals, and minimized disruption to the target company. This approach fosters a more cohesive integration post-acquisition.

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