Tuesday, August 20, 2013

How do corporate takeovers work? How does a company forcibly buy another?

Corporations have stock, which is ownership in the company. If you control enough of the stock then you own the company. If we take a simple company with 100 shares of stock the founder generally keeps 51 shares and sells 49 shares to investors. Say it looks something like this:

  • Founder (F) - 51 shares
  • Alice (A) - 20 shares
  • Bob (B) - 20 Shares
  • Charlies (C) - 9 shares

F has a majority so what he says goes. If later F needs cash for a divorce he may sell C 10 shares. F now has 41 shares but still has more than anyone else so he still runs the company. A may then go to C and buy those 19 shares off of him (giving her 29 shares) and go to B and buy 13 shares from him. Now A has 42 shares and F only has 41. A now owns the company whether F likes it or not.