In this article we would elucidate in brief, some of the important terms that are used to explain the concepts of merger and acquisition.
Asset Stripping
When a company acquires another and sells it in parts expecting that the funds generated would match the costs pf acquisition, it is known as asset stripping.
Black Knight
The company that makes a hostile takeover is known as the Black Knight.
Dawn Raid
This is a process of buying shares of the target company with the expectation that the market prices may fall till the acquisition is completed.
Demerger or Spin off
During the process of corporate restructuring, a part of the company may beak up and set up as a new company and this is known as demerger. Zeneca and Argos are good examples in this regard that split from ICI and American Tobacco respectively.
Carve –out
This is a case of selling a small portion of the company as an Initial Public Offering.
Greenmail
Greenmail is a situation where the target company purchases back its own shares from the bidding company at a higher price.
Grey Knight
A grey knight is a company that takes over another company and its intentions are not clear.
Hostile Takeover
Hostile bids occur when acquisitions take place without the consent of the directors of the target company. This confrontation on the part of the directors of the target company may be short lived and the hostile takeover may end up being friendly. Most American\n and British companies like the phenomenon of hostile takeovers while there is some more which do not like such unfriendly takeovers.
Macaroni Defense
Macaroni Defense is a strategy that is taken up to prevent any hostile takeovers. The issue of bonds that can be redeemed at a higher price if the company is taken over does this.
Management Buy In
When a company is purchased and the investors bring in their managers to control the company, it is known as management buyout.
Management Buy Out
In a management buy out, the managers of a company purchases it with support from venture capitalists.
Poison Pill Or Suicide Pill Defense
This is a strategy that is taken by the target company to make itself less appealing for a hostile takeover. The bondholders are given the right to redeem their bonds at a premium should a takeover occur.