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Definition: Godfather Offer
Godfather Offer is a takeover technique in which the acquiring company offers a bid so high that the target company is unable to discourage the shareholders from accepting the bid. The acquisition price is so generous when compared to the existing market price of the target company.
So, if the target company’s management refuses the offer the shareholders can file a lawsuit against the target company for not looking at the best interests of the shareholders.
For e.g. A company X wants to buy a company Z, whose market price per share is $10 and the company X makes an offer to take over the company at $15 per outstanding share. Even though the board is not willing to sell the company, it can’t refuse the offer as the returns to the shareholders is high and the board needs to act in the best interest of the shareholders.
The phrase was taken from the 1972 film ‘The Godfather’ in which Corleone, the head of the mafia family made an offer to Woltz, a movie studio head, which he could not refuse.