Bailout Takeover - Explained
What is a Bailout Takeover?
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Table of ContentsWhat is a Bailout Takeover?How does a Bailout Takeover Work?Academic Research on Bailout Takeover
What is a Bailout Takeover?
A bailout takeover is a takeover in which a financially strong firm or the government takes over a weak company to help it regain financial strength. A bailout takeover is often done to help a financially unstable company out of potential bankruptcy or insolvency. By purchasing the shares of a weak company, a strong company or the government can offer a bailout to an unstable firm. In a bailout takeover, the acquiring company offers financial support to a company facing troubles. This is achieved by developing a plan to help the weak company regain its financial strength.
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How does a Bailout Takeover Work?
Usually, a bailout takeover is executed when a company falls into a deep level of financial weakness and every means to make it recuperate has been exhausted. A bailout takeover is often a forced acquisition in which the government or a financially stable company urgently acquires a weak company to save it from bankruptcy.
Once this acquisition is executed, the acquiring entity formulates a concrete plan on how the shareholders of the weak company will not lose their holdings and ultimately how the company will regain its lost financial strength. A popular example of a bailout takeover was one in which the National City Corp encountered huge losses in 2008 and was eventually acquired by PNC Financial Services.
About $5.2 billion of National City's stock was purchased by PNC in order to acquire it. The acquisition was to bail the National City Corp out of potential bankruptcy. In a similar vein, the US government in 2008, took over Chrysler and General Motors to save it from potential bankruptcy. As part of the rehabilitation plans for the companies, the US government offered them a loan of $17.4 billion as a kickback loan.
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