What is a Takeover Deal?

How do business takeover deals work?We always hear about takeover deals in the media.  Mostly it’s bigger companies looking to acquire smaller ones in hopes to boost their bottom line. Some are hostile and some are friendly, but in all cases government agencies have far-reaching powers that can block any deal it deems as not having a benefit to Canada’s economy.

Recently, BCE made headlines when its takeover bid for Astral Media was rejected by the CRTC. The broadcast regulator said the deal would have given BCE too much power and would threaten the competitive media landscape.  In the long run it felt the takeover was a bad idea.

The Deal Rejection Fallout

In the short term, whether you agree with the decision or not, the lost deal does mean lost revenue. The rejection means no services will be preformed to make the deal happen and millions in advisory fees that would have been required will not be collected.

Usually investment bankers have the most to lose if deals fail. In some cases, their compensation is directly tied to the success of a deal taking place. It can also mean lost money for the two companies involved who most likely spent millions preparing the bid, presenting it, and making sure it was approved by shareholders.

Should the company to be absorbed take a hit financially, this can also be considered in the takeover approval or rejection process. In the case of BCE, it will have to pay Astral $150 million dollars because the deal was broken.

Setting the Stakes Even Higher

A takeover occurs when one company, the bidder,  attempts to take control over another company, the target. Usually it’s an elective event where shareholders of the target company choose whether or not they want the takeover to go ahead by accepting the offer. However, even if all are willing participants, the deal can still be rejected by higher forces – a situation playing out right now in finance headlines as the Canadian government ponders a takeover bid for Calgary-based Nexen by China’s CNOOC Ltd.

Financial firms including Bank of Montreal and Goldman Sachs Group Inc. risk losing as much as $190 million in advisory fees if the Canadian government rejects the bid, in addition to another $23 B CAD in planned acquisitions.

Concern for the $15.1 B Nexen bid has been raised following BCE’s Astral rejection and the refusal of a $5.2-B bid by Malaysia’s state-owned oil company for Calgary-based Progress Energy Resources Corp. on October 19.

Affecting More Than the Bottom Line

All of this could create huge uncertainty for bankers, lawyers and anyone else doing deals in Canada, and could make our nation a no-go zone for big international company takeovers.

While it’s really hard to feel sorry for the bankers and lawyers missing out on fees, I do sympathize with the shareholders who unanimously want a deal to happen but can’t move it forward because of government intervention.

Takeovers can be good for Canada when it can mean more jobs and better service but they can also mean larger companies get so big that no other smaller companies can ever compete with them. To make it fair, Government intervention is important to make sure a takeover is in Canada’s best interest but when doing so the opinion of shareholders should be paramount

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