Canadian Securities Course (CSC) Level 1 Practice Exam

What is a takeover bid?

1. An offer to buy a company's physical assets

2. Offer to purchase more than 50% of a company's outstanding shares

3. Offer to purchase 10% or more of a company's outstanding shares

4. An offer to purchase more than 20% of a company's outstanding voting securities

The correct answer is: An offer to purchase more than 20% of a company's outstanding voting securities

A takeover bid is specifically defined as an offer to purchase more than 50% of a company's outstanding shares. This is a strategic move by an acquirer to gain control of the target company, as owning a majority of the shares ensures decision-making power and influence over the company's operations and governance. The other options represent different aspects of corporate transactions but do not accurately reflect the definition of a takeover bid. For example, an offer to buy a company's physical assets pertains more to asset sales rather than a bid for control through share acquisition. An offer to purchase 10% or more of a company's outstanding shares is commonly referred to as a stake or minority interest rather than a takeover bid. Similarly, while purchasing more than 20% of voting securities indicates significant interest, it does not constitute a takeover unless it crosses the majority threshold of more than 50%.