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Although there are many facets to M&A and the industry is constantly evolving, it is important to understand the possible steps an acquirer would take in order to pursue a target business. This will further help one understand the M&A process. The early stages of the process are considered friendly, and the latter hostile.

Casual pass: A casual pass is an informal inquiry made to business management. This can literally be done via e-mail, a letter, or a phone call. A solicitation to management to discuss “strategic alternatives” can be a suggestion for acquisition. Management can either respond or reject. A rejection would lead the acquirer to one of the next steps, and this can now be considered hostile.

Bear hug: A bear hug is a letter to company management regarding an acquisition and demanding a rapid response. The letter is not a proposal but rather a demand and arrives without warning. Often the bear hug action is made public and is utilized to encourage management to negotiate in a friendly manner.

Open market purchase: In an open market purchase the acquirer purchases shares in the open market. Although an interesting tactic, this can often end up unsuccessful if a majority of shareholders are not willing to sell their shares. However, if successful, this could lower the overall cost of the transaction as one blanketed control premium is no longer negotiated, among other reasons. We will discuss the control premium later in the book.

Proxy contest: In a proxy contest the acquirer seeks to gain shareholders' support to change the board of directors' or management's decision in some way to allow the acquisition to proceed. A proxy letter can be mailed out to every shareholder in an attempt to garner support in the form of “votes.” Although the proxy strategy comes in several forms, it can prove to be unsuccessful if the target company stock is held by a large number of individuals.

Tender offer: A tender offer is a direct solicitation to purchase shareholders' shares. Because a significant purchase premium is involved in order to try to ensure that enough shareholders would be willing to sell their shares and allow the acquisition to proceed, the tender offer is a costly method of acquiring a business.

These major categories do have subcategories, and other methods of pursuing an acquisition do exist. But these major methods should help provide the most general perspective on acquisition procedure. Of course, all of the steps to an acquisition are vast and time-consuming, and consist of legal, regulation, research, and due diligence. But these are the major components designed to help you understand from a very high and investment banking–minded level where these acquisitions come from. Let see how this framework applies to Office Depot and OfficeMax.