In this article, Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023) explains how takeover bids and public tender offers work…
What is a takeover bid?
A takeover bid is a transaction launched by a company or a group of investors with a view to taking control of another listed company. After approval and review of the takeover proposal, the buyer triggers the launch of its takeover bid.
The launch of a takeover bid marks the beginning of a period during which the shareholders of the target company will be able to choose whether to keep their shares or to sell them to the acquiring company at a price higher than the last quoted price. This difference corresponds to a premium to encourage the shareholders of the target company to tender their shares to the bid.
There are two cases: cash takeover bids and equity takeover bid.
Cash Takeover bid: If the offer to acquire all the listed shares of the target company is in cash, it is called a cash takeover bid.
Equity Takeover bid: The bid can also be made in shares, i.e., the bidder will pay with its own shares. In this case, the bidder usually carries out a capital increase that will create these shares. This is known as a Public Exchange Offer (PEO) because the shareholders of the target company will be able to exchange their shares for a given number of shares in the initiating company according to an exchange ratio.
The bid can be either friendly or hostile. A takeover bid is “friendly” or “solicited” when the bid is made in agreement with the board of directors or supervisory of the target company; it is “hostile” or “unsolicited” in other cases.
The role of public authorities in regulating takeover bids?
In France, the company that initiates the takeover bid files a draft offer document with the Autorité des Marchés Financiers or AMF (the French authority about financial markets), which presents all the characteristics of the bid to investors. It is published as soon as it is filed, but is still subject to review by the AMF, which may request changes to its form and content.
• At the same time, the initiating company publishes a press release that presents the main features of the draft offer document.
• The target company may then publish a press release disclosing its board’s opinion on the bid and, where applicable, the conclusions of the independent expert’s report and the reasons for the bid.
This press release is submitted to the AMF for review and contains, in particular, the board’s reasoned opinion on the bid and, where applicable, the fairness opinion of the independent expert appointed by the company and the opinion of the works council.
To sum up, the French Authorities -through the AMF- will ensure the transparency of the potential merger between the two companies.
In addition, the Autorité de la concurrence (the French authority about competition) will assess whether the takeover bid is contradictory with the antitrust regulations & others. This is what happened with the TF1-M6 potential merger that we discussed a few weeks ago in an article (see “Related posts on the SimTrade blog” section below). On the other hand, the French Autorité de la concurrence declared this morning that the tender offer of EDF by the French state was allowed.
In the US, the institution from which companies must seek authorization from is the SEC (Securities Exchange Commission). For example, the SEC allowed Merck to buy Imago BioSciences Incorporation 2 days ago.
As regards French Autorité de la concurrence, only transactions exceeding a certain size are subject to its review. This is the case when the following three conditions are met:
• The total worldwide turnover (excluding tax) of all the undertakings or groups of natural or legal persons involved in the merger exceeds 150 million euros;
• The aggregate turnover excluding tax in France of at least two of the undertakings or groups of natural persons or legal entities concerned is more than EUR 50 million.
• The European Commission is not relevant for this merger
Indeed, sometimes, the European Commission’s approval may also have to be seeked for, when companies operate at a continental level. When the transaction involves the territory of more than one Member State and the turnover of the undertakings concerned is very large (e.g., where the worldwide turnover exceeds EUR 5 billion for all the parties to the transaction and EUR 250 million for at least two of the companies in the European Union), the European Commission is competent.
Autorité de la Concurence (French Competition Authority)
Autorité des Marchés Financiers (AMF) (French Financial Market Authority)
Related posts on the SimTrade blog
▶ Louis DETALLE A quick presentation of the M&A field…
▶ Frédéric ADAM Senior banker (coverage)
About the author
The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023).