A takeover bid is an offer to buy a company outright.
If a takeover bid has the the support of the directors of the company to be taken over (the "target" or "offeree") it is called an agreed takeover bid. If they oppose it is called a hostile takeover bid.
Takeover bids are most commonly made by:
- other companies in the same industry
- private equity companies
- major shareholders or directors who wish to take a company private.
Takeover bids usually create conflicts of interest between directors (who may lose their jobs) and shareholders (who are likely to be able to sell shares at above the market value before the bid was announced). Takeovers can also lead to situations in which minority shareholders can be unfairly treated.
Because of this, takeover bids are subject to regulation in most markets. The main British regulation is the City Code Code on Takeovers and Mergers.
A key provision of the City Code is that (unless granted a waiver because of special circumstances) the buyer of a stake in a company that gives them effective control is obliged to make a mandatory offer to buy the rest of the shares.