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Takeover Versus Acquisition

Takeover Versus Acquisition
Takeover versus acquisition sometimes, a distinction between take over and acquisition is made.
Taken over, thus, means acquisition of a total or tangible control over the assets, and liabilities, shares of another company which depends largely on percentage of the controlling share acquired thus, take over also means the acquisition of not less than 25% of the voting power in a company however, there are some situation where there is total take over/acquisition which means outright purchase of 100 % of the controlling assets/shares of target company. Takeover can be said to be an acquisition. A takeover occurs when the acquiring firm takes over the control of the target firm. In some case it can be said to be an assumption of control of a corporation achieved by buying a majority of its shares, a takeover can also be a conglomerate merger. Also, an acquisition or take over does not necessarily entail full, legal control. A company can have effective control over another company by holding minority ownership.
Takeover versus acquisition sometimes, a distinction between take over and acquisition is made. The term takeover may connote hostility, that is, when the acquisition is a forced or unwilling acquisition, it is called a Takeover. In a force takeover, the management of the target firm would oppose the move of being takeover by the acquiring firm, but, when the management of the target firm and the shareholders of the acquiring firms mutually and willingly agreed to the takeover, it is called acquisition or Friendly takeover (Pandey, 2011).
Mergers and acquisition usually occurs and achieved through a process of negotiation between the holders of a majority or all of the shareholders of the offeror and the offeree of the two or more companies. Those who initiate mergers and acquisition usually premise their actions on economic or business considerations. More often than not, a company under economic pressure or in distress usually seeks or initiate a merger ship with another better firm as a bail out from distress and if not it will definitely go into total extinction ( Cara Publikasi Jurnal Internasional , 2019).
Theoretical Framework
Information and Signalling Theory
Lintner developed Information and Signalling Theory in 1956. The theory suggests that two different investors behave differently when they have different information. The merger announcement is a source of information and signal to market participant about the possible impact of deal on firm value. The announcement of merger event would signify that the value of target would increase or double or the management team would be removed by the new owners. It also sometimes signifies that there would be an increase in the cash flows and future values. Thus, the announcement of a merger or acquisition would signal that in future there would be increase in future value of the bidder firm (Weston, 2010). There is an extension to the signal theory which states that because of information asymmetries, targets enhance the sellers gain by reducing the acquirer’s offer price. The implication is that since the target engages in inter-organizational relationships, there is gain to sellers, as it acts as a signal (Reur, 2012). The target shares and assets may be undervalued because of their higher value for an alternative owner who may place assets at a higher and better use. . If one outsider can add value, then another potential new owner may also add value. When managers learn about the potential for the discipline of a merger, they institute pre-emptive steps to initiate the discipline by themselves. The form of mergers can be used to glean information about bidders and targets. A bidder that uses common stock rather than cash may signal that the bidder’s own stock may be overvalued, or it may signal that the bidder is unsure of the target’ value and wishes target shareholders to share in the risk of potential miss-estimation of the target’s value ( Publikasi Jurnal Internasional , 2019).
Synergy Gain Theory
Synergy Gain theory was propounded by Gunther in 1955. Merger occurs broadly because mergers generate ‘Synergy’ between the acquirer and the target and Synergy in turn increases the value of the firm (Hitt, 2001). Merger and acquisition are done to get synergistic benefits out of the combined firms that are acquirer and target together. The value of combined firm is likely to be greater than the acquirer and target firm separately. The gains arise out of the financial or operating synergies though economies of scale of operations. It means when the two firms combine, their fixed cost is distributed among the large scale of productions leading to less fixed cost. Apart from the economies of scale, there is another variant of it which is called as economies of scope where the complementary resources of the acquirer and target firm are combined to bring synergy gains. Most of the merger and acquisition have a motive to increase the size of the company. This is possible when two firms combine to get the benefits of economies of scale and scope. Economies of scale occur in various ways. It may occur because of the huge scale of operation or it may occur by holding inventories or through specialization. Economies of scope occur when a company manufactures some related goods at lower cost as it enjoys the experience of dealing with the existing products (Romano, 1992, Weston, 2011). JrisyMotis (2007) posited that Synergies are efficiencies that can only be achieved by merging, that is, they are merger specific. Synergy takes the form of revenue enhancement and cost savings, operating efficiency is also a form of synergy. Gaughan (2007) presents operational and financial synergy. According to Gaughan (2007) operational synergy appears in the form of revenue enhancements and cost reductions. Financial synergy is achieved when the cost of capital is or may be reduced through the combination of two or more companies.
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