Friendly Takeover Definition
A friendly takeover refers to a proposal where the managerial level and executives of a target organization confirm a merger or acquisition by some other firm that involves approval from the shareholder and U.S. Department of Justice (DOJ).
A Little More on What is a Friendly Takeover
During a friendly takeover, the acquiring company sends out a public stock offering or cash, and the management of the target company gives approval to the buyout conditions, which may also include the approval of shareholders and regulatory parties. It is different from a hostile takeover where the target firm doesn’t give approval to the buyout, and tends to save itself from being acquired. Mostly, if the board of directors says yes to a buyout agreement of an acquiring company, the shareholders will approve the decision too. The acquiring firm provides a premium to the existing market price, but the amount of the premium amount will ascertain the total support for the buyout within the target firm.
Example: Friendly takeover of Aetna by CVS
Back in December 2017, the famous drugstore chain named CVS Health Corp. told about its plans of acquiring health insurance firm Aetna Inc. for a whopping amount of $69 bn in stock and cash. The shareholders of both the companies agreed to the merger on March 13, 2018.This approval was an important step in bringing revolution in the health industry. By the end of 2018, the companies believe that they should be receiving the final verdict from the Department of Justice. By converting the pharmacy stores of CVS into huge medical hubs. Both firms have a belief that they can offer effective health services to customers, give them health-based benefits, proper health services round the clock, and aid customers in sticking to the prescribed drug schedules, specifically the ones with chronic health issues.
This merger was a fine example of vertical merger where a supplier and its customers partnered to increase their market share and offer better service. Such kind of merger enables a company to operate cordially across interlocking lines of firm and help the merged firm to save money. Also, it translated to more care, making drugs available at lower prices, and decreasing the insurance premium for the customers. This friendly takeover took place when medical firms and providers were pushed to reduce costs. As per the 2016 stats, the health costs of the U.S. residents was 17.9% of the country’s GDP. And, this figure can increase to 19.7% by the year 2026. Also, the speculations of the Amazon entering the pharma sector gave a spur to the quote by CVS. It is so because Amazon makes sales of over-the-counter drugs such as Perrigo.