Explanation:Often, acquisitions are the result of friendly discussions between two firms, whose target company accepts the acquisition. The two companies then negotiate and ultimately agree on the terms of the acquisition. However, the acquisition may have taken place against the will of the factory management obtained from the so-called "hostile take." By malicious takeover, a foreign company gains control interest on a targeted company by purchasing more than 50% of the target company's shares. This doing so by giving existing shareholders a higher value of their shares than they can now earn in the open market, thus enticing them to sell. Whether acquisitions are friendly or hostile, acquired firm shares are usually bought above their current market value. The differenсe between the сurrent mаrket рriсe оf а stосk аnd the рriсe оffered fоr аn asset is саlled а рremium.
Example:Vodafone acquired Mannesmann, a German-owned industrial conglomerate, for a total of $203 billion in January 2021. Vodafone, a mobile operator in the United Kingdom, acquired Mannesmann for a total of $203 billion. Vodafone became the world's largest mobile operator after this deal, which paved the way for dozens of mega deals in the telecommunications space in the years following. It is the largest mergers and acquisitions transaction in history.
Types:Several methods can be used to pay for an acquisition, including cash, a security payment (such as a stock-for-stock exchange), a leveraged buyout, or a combination of these methods. The simplest way to purchase shares of another company is to pay cash to the existing shareholders of the target company. By exchanging assets and securities with the target company, the acquiring company makes a secure payment.
In a Nutshell:
- The process of taking control of a company happens when one company buys the majority of shares of another company.
- If a firm controls more than half of its target company, the firm effectively controls the company.
- A merger joins together two existing companies to create a brand new company. An acquisition is typically friendly, whereas a takeover can be hostile.