Godfather Offer
What Is a Godfather Offer?
A Godfather offer is an unquestionable takeover bid made to a target company by an acquirer. Normally, the offer is priced at an incredibly liberal premium compared with the target's common share price, making it challenging for management to dismiss the bid without infuriating shareholders and being blamed for breaking their fiduciary duty.
A Godfather offer is named after the Francis Ford Coppola film of a similar title. All the more explicitly, the name alludes to the film's well known line, "I will make him an offer he can't deny." This line has proceeded to become perhaps of the most celebrated citation in film.
How a Godfather Offer Works
Generally, the possibility of a Godfather offer isn't such a lot of an offer as a wily, yet blundering demand: do as I say, or something bad might happen.
Of course, the acquiring company isn't implying it will kill someone in the event that it doesn't get everything its could possibly want, as Marlon Brando's character Don Corleone did in the film. In any case, it is being aggressive and putting a targeted company that would rather not be purchased in an off-kilter, weak position.
When a tender offer is made publicly welcoming shareholders to sell their shares at an entirely good price, the target's board of directors could experience difficulty voicing its resistance. Put it along these lines: If management would rather not sell and censures the bid, shareholders might start lawsuits or different forms of rebel against the target company for not playing out its fiduciary duty of paying special attention to shareholders' interests.
Most Godfather offers are cumbersome: "do as I say, or something bad might happen," is shrouded in an offer.
A Godfather offer is even harder for the target company's management to dismiss when its stock price has been flat or declining for an extended period of time. In such situations, almost certainly, long-lasting investors would take advantage of the chance to cash out at a raised price.
Illustration of a Godfather Offer
Company A will be a promising, remarkable new designer of new, niche innovations. Its answers could reform how the world works, leading a few bigger companies to sniff around and ask about taking it over.
Company A's management team privately repels all recommendations, claiming it cares very little about selling and giving over the entirety of its capability to another firm. That strategy assists with keeping the hunters at bay for a couple of months until one of them turns hostile.
Company C, an industry juggernaut with huge financial resources, eventually becomes weary of Company A's hesitance and answers by postponing a liberal Godfather offer straightforwardly to shareholders. A bid of $70 per share is held up, addressing a 75% premium on Company A's current market price.
Company A's board is irate and keeps up with it does't have any desire to sell at any cost, while the shareholders it is chosen to address voice support for the deal and decline to take no for a response. Out of nowhere, things turn muddled. Displeased shareholders participate in a proxy fight, combining efforts trying to hold onto control and get the takeover approved. They additionally take steps to sue senior management for neglecting to act to their greatest advantage.
Highlights
- Assuming that the bid is declined, shareholders might start lawsuits or different forms of rebel against the target company's board for not playing out its fiduciary duty.
- Ordinarily, the offer is priced at a very liberal premium compared with the company's common share price, making it hard for management to dismiss.
- A Godfather offer is a certain takeover bid made to a target company by an acquirer.
