Takeover financing is funding for the purpose of obtaining control over a corporation through the purchasing of stock.
Takeover financing means exactly what it sounds like. It provides capital for someone to gain control of another corporation using stocks to gain the control. In the business world the corporation that is being taken over in this way is known as the target. The target’s assets are often used as the collateral for the large loan needed.
This takeover can also take the form of a tender offer meaning that there is a public invitation for all shareholders to sell their stock. Often times the price to sell is higher than what the stocks are worth and the takeover will take place once the firm or individual taking over has purchased enough shares to obtain control. The Williams Act of 1966 does require that all shareholders are offered the same price when a public tender offer is made.
Another form of takeover financing that is similar to the ones mentioned above is a creeping tender offer. This is where a group of investors gradually purchase company shares. This helps them get around the Williams Act so not as much financing may be necessary for the takeover.
Takeover financing is also commonly referred to as a leveraged buyout. Sometimes this process can result in a merger of two large corporations. The key use for this financing is that it allows the individual or entity to gain controlling interest in the target company. Targeting a business with undervalued assets will allow the entity taking over to acquire control with less money.