M&A normally begins with whispers. Managers of each company meet and sound each other out. If things go well, the acquiring company will start a period of early due diligence, where they appoint bankers and lawyers to start nosing into the target’s finances and mull what they’re getting into.

How do they keep all this secret? They often can’t, and information leaks to the financial press – accidentally or on purpose. If journalists get hold of it, their reports can trigger big movements in stock prices.

Eventually (sometimes behind closed doors and sometimes in the glare of the media) the acquirer will decide whether or not to make a formal takeover offer. This will state the price the acquirer is willing to pay and outline the rationale for the merger. An acquisition can be an all-cash deal, an all-stock deal, or a combination of the two (more on that in the next session).

What happens then? The target firm’s management will decide to accept or reject the offer – sometimes in consultation with major shareholders. They might negotiate on price, or ask other companies to acquire them. That can trigger a bidding war, where multiple acquirers duke it out to buy the company (Disney had to outbid Comcast to nab Fox).

If the target’s management agrees to the takeover, a special meeting will be called for shareholders (the ultimate owners of the company) to accept or reject the offer. They generally say yes.

But even that doesn’t mean it’s a done deal. Regulatory authorities can block a takeover if they think it might create a monopoly that would hurt consumer choice or lead to the loss of a key national industry. These antitrust regulators can take their sweet time, and if a merger crosses national borders there can be regulators from several different countries involved.

Finally, usually many months later, the deal can close. At the appointed time, shareholders in the target company receive either cash or a bunch of new shares, and the deal is done. Phew! 😅

(The details of all the above will vary from country to country, but you get the gist!)

When do acquisitions get hostile? Hostile takeovers are a controversial part of M&A where an acquirer buys up enough stock to gain ownership control of the target company, against its management’s wishes. The bad blood this stirs up can make it even harder to integrate the two firms.

Price is the key to any acquisition, hostile or not. Next, we’ll weigh what to pay for a firm.