Introduction to Takeover for Kids and Teens
This video explains the concept of company takeover in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about takeovers, acquisitions and mergers, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.
Suitable for students from grade levels:
- Elementary School
- Middle School
- High School
The topics covered are:
- What is a takeover
- What is a friendly takeover
- What is a hostile takeover
- How does a takeover impact you as a shareholder
What is a takeover?
A takeover, also called an acquisition, is a process where one company acquires or takes control of another company.
Often, when a large company believes that a smaller company can add value to its current business operations or wants to eliminate competition, it initiates a takeover to take control of the smaller company.
The company initiating the takeover is called the acquirer, and the company being acquired is called the target. If both companies are public, their stocks will usually be combined to have the same ticker symbol after the takeover is completed.
There are two main types of takeovers: friendly takeovers and hostile takeovers.
What is a friendly takeover?
In a friendly takeover, both the acquirer and the target are willing participants, and negotiate the terms of the deal together. The deal is approved by the target company’s board of directors, and voting is done by the shareholders of both companies to finalize the takeover.
One example of a friendly takeover is when CVS acquired Aetna for $69B in 2018.
What is a hostile takeover?
A hostile takeover is where the acquirer tries to take over the target company, against the will of the target company’s management.
Tender offer is the most common method of a hostile takeover, where the acquirer bypasses the target company’s management and offers to buy shares directly from shareholders, usually at a premium, with the hope of getting a majority stake.
Proxy contest is where the acquirer tries to convince the existing shareholders to replace the current board members with their own candidates who will support the sale.
Yet another method is a creeping tender offer, where the acquirer simply gets a majority stake in the target by secretly buying shares from the stock market.
One example of a hostile takeover is AOL taking over Time Warner for $182B in the year 2000.
How does a takeover impact me as a shareholder?
Often, when a takeover is mentioned in the press, the stock price of the target company goes up significantly. In addition, if the acquirer is purchasing shares from the target company’s shareholders through a tender offer, it is usually at a premium.
However, depending on the market’s perception of the deal, there is a fair chance that the acquiring company’s shareholders may not make any profit from the takeover.