How a takeover bid works and how it can affect investors
A takeover bid is an offer to purchase a company's shares from its shareholders. Deciding to accept a takeover bid is voluntary, but it is essential to consider all options and evaluate their potential consequences.
The first thing to consider when there is a takeover bid is that it must first be authorized by the Spanish National Securities Market Commission (CNMV), which also requires the bidder to make the following documents available to the public, as they are essential for making an informed decision:
- The prospectus of the takeover bid, with details about the bid.
- The announcement of the takeover bid, outlining the main points.
- A report from the board of directors of the target company, containing its opinion regarding the offer.
It's also important to closely follow all ‘relevant information’ published from the announcement of the offer through to its completion. The entities involved in the takeover bid will update the market with any significant information that may arise during this period.
With all this in mind, we will arrive at one of the following decisions:
- Accept the takeover bid (and sell the shares to the bidder, for cash or in exchange for shares in the bidder’s own share capital).
- Reject the takeover bid and hold onto our shares.
However, declining the takeover bid doesn't guarantee that we'll keep our shares. Sometimes, the bid is for 100 percent of the company's stock and includes a "squeeze out" or "sell out" clause. Under Spanish law, in the event that following completion of the bid procedure the bidder has acquired shares representing not less than 90 percent of capital, as well as 90 percent of the voting rights comprised in the bid, then the bidder may compel the remaining shareholders to sell their shares at the bid price.
If we reject the offer, we should also bear in mind the risk that many other shareholders might accept it. If that happens, the unsold shares might become less liquid. A shareholder who rejects the bid therefore needs to consider what might happen to the share price if the transaction does not succeed.
