A friendly merger is the when the management and board of directors of the target company agree to be merged (acquired by) into an acquiring company. Although the deal is typically subject to approval by additional parties, it is the decision of the management and the board that decide whether the deal is a friendly merger or hostile one. Subsequent agreement by both the target company’s shareholders and regulatory agencies such the U.S. Department of Justice (DOJ) of Federal Trade Commission (FTC) will decide if the deal consummates.
Almost all mergers are friendly, even more so than takeovers or acquisitions. By definition, it would be difficult to force a company to merge if they were not inclined to do so. Subsequently, the merger spread will be lower for friendly deals as the DCP will be higher.
Example of a Friendly Merger
On January 28, 2020, BorgWarner (BWA) and Delphi Technologies (DLPH) announced a friendly merger where DLPH will receive 0.4534 shares in BWA for each DLPH share. The original press release does not mention the word “friendly” but it is clear from the language in the document there are no hostilities.
“This is a compelling transaction that we are confident delivers clear benefits to our stakeholders,” said Richard F. Dauch, CEO of Delphi Technologies. “Delphi Technologies’ portfolio is highly complementary to BorgWarner’s, and together we plan to create a pioneering propulsion technologies company uniquely equipped to serve OEMs and aftermarket customers around the world. BorgWarner’s team shares our focus on addressing today’s and tomorrow’s challenges, and the combination will create exciting opportunities for our employees. We also expect our stockholders will benefit from the opportunity to participate in the future growth and upside potential of the combined company.”
The required shareholder vote and regulatory clearance remain outstanding at time of publication. These however do not change the status of the bid as being “friendly”.
