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Targeted buybacks are used to prevent hostile takeovers by buying enough shares to regain control of a company. The company may offer more per share than the raider to acquire outstanding shares and prevent the takeover. If the predator is not happy with the per-share price, the company may combine targeted buyback efforts with another strategy, such as forming a holding company. However, a targeted buyback may be futile if the raider is determined to acquire the company for dismantling or if the company does not have the resources to buy back shares.
Targeted buybacks are strategies that are sometimes used to derail a hostile takeover attempt and maintain control of a company. The exact method of a targeted buyback usually involves buying enough issued shares to regain controlling interest in the company and then have enough votes to prevent a hostile takeover. In most cases, repurchasing outstanding shares is done by offering more than the current market price for each share being repurchased.
A targeted buyback may involve working around the corporate raider to acquire as many outstanding shares as possible. This usually means offering shareholders more per share than the raider is willing to offer. With luck, the company can buy enough shares before the predecessor has acquired a controlling amount of stock and essentially prevent the takeover attempt from proceeding any further.
At this point in the targeted buyback, the company can approach the corporate raider and bid on all of the stock the raider has acquired up to that point. If the price per share is attractive to the predecessor, he or she may choose to sell the shares to the issuing company and abandon the takeover attempt. When this happens, the targeted buyback can be considered a success.
However, if the predator isn’t happy with the per-share price the company is offering, the situation could become a deadlock. When this type of situation arises, the company may choose to combine targeted buyback efforts with another strategy, such as forming a holding company that receives all of the acquired shares and begins the process of converting into an equity ownership plan. employees. Under these conditions, the raider usually has to agree to a fair market price for the stock under his control, or risk becoming worthless once the government approves the stock conversion plan.
Hostile takeovers are a fact of life in modern business today. Depending on the location of the company being attacked, a targeted buyback may be a wise move. However, there are incidents where a targeted buyback attempt may be futile, such as when the corporate raider is determined to acquire the company for dismantling or when the company does not have the resources to raise enough capital to buy back the shares.
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