Takeovers are an optional feature in MikesBikes-Advanced that Smartsims can enable at your request. Once enabled, students have the option of entering a takeover bid under the “Investments” menu within the simulation. This menu shows all of the firms in the industry, differentiated by those who are available for purchase and those who are already owned. Of those that are available to purchase, the screen will provide an approximate minimum bid.
Takeover bids are processed at rollover time. If the bid is over valuation and there are no other higher offers it will be automatically accepted, except in the following circumstances:
1. As a result of the purchase the parent company’s total market share would be greater than 50% (statutory protection against oligopolistic behavior); or
2. The parent company does not have enough cash to cover their bid.
If the bid is successful the owned company will still operate as they have done previously, except that financial decisions will now be controlled by the parent company. It can be an interesting process. Although the child company may feel hostile toward the new parent company, these firms are usually in need of the extra capital as well as much needed advice. If both firms can perform better together, the rewards will be seen in both their Shareholder Values increasing.
Note: At any time the parent company can decide to sell the company back to the market. As such, firms can include an exit strategy as part of their investment once the owned company has increased in value.
If you would like to enable takeovers in your simulation, please email us (instructors only).
– Ian McPherson