What Is a Godfather Offer?
A Godfather offer is an irrefutable takeover bid made to a purpose company by means of an acquirer. In most cases, the offer is priced at a in particular generous most sensible elegance in comparison with the target’s prevailing share value, making it difficult for keep an eye on to reject the bid without angering shareholders and being accused of breaching their fiduciary duty.
A Godfather offer is known as after the Francis Ford Coppola movie of the identical determine. Further in particular, the identify refers to the film’s well known line, “I’m gonna make him an offer he can not refuse.” This line has lengthy long past immediately to change into one of the most a very powerful celebrated quotations in cinema.
Key Takeaways
- A Godfather offer is an irrefutable takeover bid made to a purpose company by means of an acquirer.
- In most cases, the offer is priced at a in particular generous most sensible elegance in comparison with the company’s prevailing share value, making it difficult for keep an eye on to reject.
- If the bid is refused, shareholders would perhaps get started up court docket circumstances or other types of revolt towards the target company’s board for not showing its fiduciary duty.
How a Godfather Offer Works
In essence, the theory of a Godfather offer isn’t this kind of lot an offer as a sly, however heavy-handed name for: do as I say, or else.
Actually, the acquiring company isn’t insinuating it’ll kill any person if it does no longer get its way, like Marlon Brando’s persona Don Corleone did inside the movie. However, it is being aggressive and placing a targeted company that doesn’t want to be purchased in an awkward, vulnerable position.
When a tender offer is made publicly inviting shareholders to advertise their shares at an excessively favorable value, the target’s board of directors could have trouble voicing its resistance. Put it this way: If keep an eye on does no longer want to advertise and snubs the bid, shareholders would perhaps get started up court docket circumstances or other types of revolt towards the target company for not showing its fiduciary duty of looking out for shareholders’ interests.
Most Godfather offers are heavy-handed: “do as I say, or else,” is cloaked in an offer.
A Godfather offer is even harder for the target company’s keep an eye on to reject when its stock value has been flat or declining for an extended time period. In such scenarios, it is even a lot more most likely that long-time investors would soar at the choice to cash out at an larger value.
Example of a Godfather Offer
Company A is a promising, up-and-coming developer of new, space of hobby technologies. Its solutions might revolutionize how the world operates, major some better companies to sniff spherical and inquire about taking it over.
Company A’s keep an eye on team of workers privately rebuffs all proposals, claiming it has no real interest in selling and handing over all its doable to each different corporate. That methodology helps to keep the predators at bay for a few months until one among them turns antagonistic.
Company C, an industry juggernaut with necessary financial assets, in spite of everything gets tired of Company A’s reluctance and responds by means of tabling a generous Godfather offer straight away to shareholders. A bid of $70 consistent with share is lodged, representing a 75% most sensible elegance on Company A’s provide market value.
Company A’s board is livid and maintains it does’t want to advertise at any price, while the shareholders it is elected to represent voice support for the deal and refuse to take no for an answer. , problems turn messy. Disgruntled shareholders engage in a proxy battle, changing into a member of forces in an attempt to take hold of keep watch over and get the takeover approved. Moreover they threaten to sue senior keep an eye on for failing to act in their best possible conceivable interests.
