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Shares Made Simple: A beginner's guide to the stock market by Rodney Hobson

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Chapter 23: A Bid Is Launched

A takeover bid is generally good news if you hold shares in the target company but is usually not particularly welcome for shareholders in the predator company.

That is because takeovers are normally pitched at a higher level than the stock market price of the target company. This is known as the bid premium. There is no obligation to pay a bid premium, but if a bidder is keen to buy then it is usually willing to up the ante in order to succeed.

Bidders prefer to get the backing of the target company’s board. If they do, then it is an agreed or recommended bid.

An agreed bid has a greater chance of success, since the target company’s board is urging its own shareholders to accept. The offer has to be sufficiently ...

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