Does an acquiring company have to buy all the stocks of a target company to acquire/merge with it? If so, why? I thought stocks give voting rights and dividends, but not direct control of company management. If not, why do they usually do it?
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2 Answers
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Acquiring a company involves acquiring all of its shares and giving the previous shareholders money, your stock, or other valuable things, like options.
You don't have to acquire all the shares on the open market, though. You would never be able to persuade every single shareholder to sell their shares. You just have to get enough that the board of directors (or a majority of shareholders at a shareholder meeting) votes to merge the target company in, converting all existing shares into the cash or shares that you are offering.
If the management is willing, you don't have to buy any on the open market. They just vote to accept your offer to merge their company in and all shareholders receive whatever it is you offered. If the management is not in favor, you have to buy enough shares that you plus the other investors who are willing have enough influence to make it happen. This can mean replacing board members or casting direct votes.
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Stocks/shares are equity (a share is 'a part of' something) and are thus essential to ownership of a company. Owning shares means that you own part nof a company. The ownership, as a side effect, gives voting rights on the C-suite and dividends.
Acquiring a company requires you to buy all of the shares of that company (so that you own it).
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$\begingroup$ But you don't need stocks to control a company. Imagine an acquiring company controls a target company and changes the target company's bylaws to equal those of the acquiring company. However, they do not buy all the target company's stock. Would there be any practical difference between this and a normal takeover where they do buy the stock? $\endgroup$– roobeeCommented Jul 19, 2016 at 17:29
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$\begingroup$ @roobee How would you control a company without owning stock? $\endgroup$– KontorusCommented Jul 19, 2016 at 17:36
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$\begingroup$ The same way you control one if you do? You convince the company that a merger would be mutually beneficial. You tell them the bylaws they should adopt and the procedures they follow. If you do buy their stock you still have to do all this, right? Since the stock would only give you voting rights, but no authority to tell the company what to do or change their bylaws. $\endgroup$– roobeeCommented Jul 21, 2016 at 0:49