What is a Godfather?

A godfather is an aggressive takeover technique. It is a takeover bid pitch so that the target company would find it difficult to refuse, out of fear that the shareholder revolt or lawsuits. In other words, it also means that the tender offer made by the target company must be accepted. It refers to an offer made by a company to take over or purchase another company.

The term Godfather originates from the classic 1972 film “The Godfather” – in which the line "I'm gonna make him an offer he can't refuse’’, has become the most iconic and evergreen quotation in cinema.

You will find the godfather term often in the context of mergers and acquisitions. When the share price of the target company’s stock is declined or is Flat for some period of time, shareholders would demand to accept the offer, so that they profit well. Ideally, if the company’s share price has been weak for a long time, then it is more difficult to turn down a Godfather Offer. Because shareholder would want to sell a declining stock.

Godfather Offer Example

Let’s assume there are two companies -- Sea Crop and Ocean. The former wants to acquire the latter. The ocean is trading at Rs. 10; Sea Crop makes an offer of Rs. 20 per share - a 50% premium. Even though Ocean knows that Sea Crop intended to acquire, Ocean can’t refuse the offer. Simply put, Sea Crop makes a godfather offer.

Key Takeaways

• A godfather offer ridiculously favourable.
• It is effective because the takeovers offer the company a favourable deal - for instance, a 50 % premium.
• Rejecting the offer of the shareholders would probably sue the board for failure to act in their best interests.