Takeovers. Friendly bids vs hostile bids

In business, a takeover is the purchase of one company (the target) by another (the acquirer, or bidder). In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.

Friendly takeovers

Before a bidder makes an offer for another company, it usually first informs the company's board of directors. In an ideal world, if the board feels that accepting the offer serves shareholders better than rejecting it, it recommends the offer be accepted by the shareholders.

In a private company, because the shareholders and the board are usually the same people or closely connected with one another, private acquisitions are usually friendly. If the shareholders agree to sell the company, then the board is usually of the same mind or sufficiently under the orders of the equity shareholders to cooperate with the bidder.

Hostile takeovers

A hostile takeover allows a suitor to take over a target company whose management is unwilling to agree to a merger or takeover. A takeover is considered "hostile" if the target company's board rejects the offer, but the bidder continues to pursue it, or the bidder makes the offer directly after having announced its firm intention to make an offer.

A hostile takeover can be conducted in several ways. A tender offer can be made where the acquiring company makes a public offer at a fixed price above the current market price. An acquiring company can also engage in a proxy fight, whereby it tries to persuade enough shareholders, usually a simple majority, to replace the management with a new one which will approve the takeover. Another method involves quietly purchasing enough stock on the open market to effect a change in management. In all of these ways, management resists the acquisition but it is carried out anyway.

The main consequence of a bid being considered hostile is practical rather than legal. If the board of the target cooperates, it provides the bidder with a comprehensive analysis of the target company's finances. In contrast, a hostile bidder will only have more limited, publicly-available information about the target company available, making the bidder vulnerable to hidden risks regarding the target company's finances. An additional problem is that takeovers often require loans provided by banks in order to service the offer, but banks are often less willing to back a hostile bidder because of the relative lack of information about the target available to them.

Borrowing and lending. Loans and mortgages

The bank lends money at a certain interest rate. Alternatively you can also deposit money in the bank and it pays you an interest for some interst rate which is obviously smaller. Basically, the bank takes the money one person deposited and gives it out as loan to another person who may need the money. Bank charges higher interest for lending than borrowing and keeps the difference to itself. This is the fee that the banks get for offering its services. They make a profit (spread or margin) from the difference between the interest rates the pay to lenders or depositors and those they charge to borrowers.

Lending: There are several risks which a bank faces when it lends money to someone. The risks include the default risk of the concerned party and the increase in interest rate in economy etc. One of the first things to look at is how the concerned party is going to repay the loan. i.e. the borrower's Capacity to repay - solvency. This money may come from the expected future cash flows from borrower's business. The next thing banks consider before lending to a corporate borrower is the capital which the borrower himself has put in the business. This shows the commitment which the borrower has in his own business and also his capacity to pay back the loan.

For a general borrower, which may include a corporate borrower as well, the banks generally try to take hold of a Collateral which is a form of guarantee that the loan will be repaid. In case the borrower defaults on the payment, the bank can take possession of the collateral, which usually is a property or machinery etc., and sell it to recover part of the loan. Sometimes banks may also require a third party to provide a guarantee for the borrower. In this case, the third party is liable to pay back the loan in case of a default by the borrower.

Similarly, while depositing/lending money individuals needs to consider the best place to do so. They may lend to banks, which are safest but pay lower interest, or they may lend directly to corporate (through corporate bonds for instance). However, the riskiness of these bonds is higher than that of bank deposits or government bonds. This is reflected in the higher interest rates these corporate bonds pay.

Borrowing: While borrowing money, corporate investors or individual borrowers need to be very cautious of the lender. Most of the lenders are safe, however many are not. They may include hidden fee and other terms which increase the cost of borrowing. Some points borrowers need to keep in mind before borrowing are:

1. One should look around for the cheapest/best loan and consult several lenders/advisors

2. Understand the terms and check the total cost of the loan. Take special care of hidden fee and surcharges.

3. Borrow only the required amount with understanding of capacity to pay back in terms of money and time.

4. Read the loan document completely before signing. Check everything for accuracy.

5. Be cautious in dealing with uninvited loan offers and claims of limited time offers.

A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.

In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial repayments; in an annuity, each installment is the same amount.

The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent.

Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral.

A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security the house — until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.