The mergers and acquisitions process begins with a tender offer, which often involves buying shares in the target company. After purchasing 5 percent of the total outstanding shares of a target company, the acquirer must file its intent with the U.S. Securities and Exchange Commission. The tender offer may propose cash, shares, or both in return for the target company.
The target responds to the tender offer by accepting the stated terms or, alternatively, entering into negotiations to secure a higher price or add more terms, such as job stability agreements. Should the target company wish to avoid a hostile takeover, it can initiate a poison pill scheme, in which it offers highly discounted equity to stockholders other than the acquiring company to dilute the number of shares, thereby reducing the percentage held by the acquiring company. Target companies may also seek a preferable acquiring company to compete against the hostile acquiring company.