We have discussed everything there is to know about mergers and acquisitions in several articles prior to friendly mergers vs hostile deals. In those articles, we have also established the different kinds of mergers and how these affect a company. Some mergers lead a company to the right path to success, while some are simply a means to an end.
With that said, there is more to cover about mergers and acquisitions. In this article, we will discuss the different types of friendly mergers and how they can help a corporation. We will also dive deeper into the different types of hostile deals, what they are, and how they affect a corporation.
Additionally, we will learn the difference between friendly mergers and hostile deals. Hopefully, by the end of this article, a lot of you will understand the differences and similarities between the two.
The legal regulations governing mergers and acquisitions will also be discussed. Depending on whether a transaction is a friendly merger or a hostile deal, the legal requirements governing mergers and acquisitions differ in the different states within the United States. It is also important to mention that within friendly mergers and hostile deals, the rules vary depending on two factors. These factors are whether the transactions are financed by cash or financed by stocks.
Check out the regulatory framework of each of these alternatives below:
Friendly Mergers
Cash financed
In a cash financed friendly merger, the bidder is required to file a proxy statement with the Securities and Exchange Commission (SEC). This describes the deal. To make the deal happen, it is only usual for the bidder to file a preliminary statement first.
There will also be instances where the preliminary statement is changed before it is finalized. This usually happens if the Securities and Exchange Commission makes a comment or request some changes.
Once the proxy statement is finalized, it will then be mailed to shareholders along with a proxy card. The shareholders will fill out and return the said proxy cards. After this, the shareholders will hold a meeting and approve the deal. This is also where the deals are closed.
Stock financed
The friendly mergers that are financed by stock have a similar process to those friendly mergers financed by cash. The difference is that the securities used to purchase target shares have to be registered.
The process usually starts when the bidders file a registration statement. Once the registration statement is approved, the combined registration and proxy statement can be sent to shareholders.
Additionally, this can also have deals where a combination of stock, cash and even other securities are used.
Hostile deals
Friendly mergers are focused on cash and stock financed. What happens now with hostile deals?
Cash tender offer
In hostile deals where cash tender offers are used, the bidder is the first one to initiate a tender offer. The bidder does so by disseminating tender offer materials to his or her target shareholders.
Offers like these have to be made pursuant to the requirements of the Williams Act. The Williams Act was passed in the year 1968. It is one of the most important pieces of securities legislation when it comes to the field of M&A.
Since it was passed, this bill had a pronounced impact on merger activity, especially in between the 1970s and 1980s. Before the Williams Act was passed, tender offers were largely unregulated. However, in the 60s, these types of offers became a more popular means of taking control of corporations and ousting entrenched management.
There are four major objectives under the Williams Act. These are as follows:
- To regulate tender offers – as previously mentioned, before the Williams Act was passed, the world of mergers and acquisitions was very different. Back then, stockholders of target companies often were stampeded into tendering their shares quickly to avoid receiving less advantageous terms.
- To provide procedures and disclosure requirements for acquisitions. Through the Williams Act, there are now better disclosures. This means that stockholders can now make more enlightened decisions with regard to the value of a takeover offer.
- To provide the shareholders with time so they can make informed decisions regarding tender offers. Everyone needs ample time to analyze the data given to them. With the help of the Williams Act, shareholders are now equipped with enough time to review the data and make more informed decisions.
- To increase the confidence in securities markets. If investors are confident in the securities market, the market can attract more capital. It’s a win-win situation where the investors will be less worried about being placed in a position. Where incurring losses happen when they make decisions based on limited information.
However, unlike the friendly transactions we discussed, the Securities and Exchange Commission or SEC does not have an opportunity or the right to comment. The materials that are sent to the shareholders prior to their dissemination. However, the SEC does have the right to do so during the minimum offer period and only in that minimum offer period.
Stock tender offers
Now we have the final type of hostile deal, the stock tender offers a hostile deal. In deals like these, the bidder is required to submit a registration statement first and wait until it is effective prior to submit the tender offer materials to the shareholders.
In cases like these, the SEC may have comments on the preliminary registration statement. It has to be resolved before the statement can be considered effective. Once all of these requirements are done, the process of a hostile deal stock tender offer proceeds similarly to a cash tender offer.
Now that we have all of the friendly mergers and hostile deals covered, you now have a basic understanding of the difference between the two. We hope that this article has helped you gain some more insight into these types of mergers and deals, and use this knowledge to your full advantage.
If you have more questions and additional information regarding friendly mergers and hostile deals, be sure to let us know, we’d be more than happy to help!