mergers and business combination by, sanaullah
TRANSCRIPT
Business Combination
“A business combination occurs when two or more companies join under common control, meaning the ability to direct policies and management.”
“A business combination occurs when an enterprise acquires net assets that constitute a business or equity interests of one or more other enterprises and obtains control over that enterprise or enterprises.”
What is the motivation behind business combination
Growth
I. New markets
II. Increase in market share
Reduction in operating costs
Diversification
Tax reasons
Management incentives
TYPES OF BUSINESS COMBINATION
Business Combination
Merger Consolidation
Congeneric conglomeratic
Horizontal
vertical
Upward
Downward
MERGER
Occurs in a friendly environment when one
corporation takes over all the operations of
another business entity and that other entity is
dissolved.
CONSOLIDATION
Occurs when a new corporation is formed to
take over the assets and operations of two
or more separate business entities and
dissolves the previously separate entities.
ACQUISITION
The process of merger where the powerful
companies are eating to the smaller companies.
It can be eating up the stocks and increasing
the holding rights
Or the customers of other smaller companies
then transferring the assets into their own
accounts
TYPES OF MERGERS
Congeneric
Conglomerate
1. Horizontal:when similar nature of
companies merge1. vertical
Upward: Suppliers or raw material
providers of the similar nature of companies merge with the parent company
Downward: distributors or resellers of the
similar nature of companies merge with the parent company
ECONOMIC REASONS OF COMBINING BUSINESSES
Operating Advantages
Financial Advantages
Enhanced growth
opportunities
Diversification
Tax advantages
Production volume increases and the average cost
of production and selling will decreases
Example: Overhead cost of Admin
department of QAU and PIDE
Horizontal mergers often take advantage of reduced
production cost by increasing the volume of
production
ECONOMIC REASONS OF COMBINING BUSINESSES
Operating Advantages
Financial Advantages
Enhanced growth
opportunities
Diversification
Tax advantages
The firms can take opportunities in the financial
markets because of its increased size or
efficiencies
Example: two companies one has obtained high
debt capacity and the other firm low. When they
merge the lower debt capacity holding firm will
take the financial advantage
ECONOMIC REASONS OF COMBINING BUSINESSES
Operating Advantages
Financial Advantages
Enhanced growth
opportunities
Diversification
Tax advantages
Merged companies grow at a faster rate as
compared to individual companies
Quicker
Provides product in a more timely fashion
ECONOMIC REASONS OF COMBINING BUSINESSES
Operating Advantages
Financial Advantages
Enhanced growth
opportunities
Diversification
Tax advantages
Smooth earning instead of fluctuations in seasonal
economic cycle
Example: Auto mobile manufacturer might
acquire a replacement parts company
Reduces the risk factor i.e. illiquidity or bankruptcy
ECONOMIC REASONS OF COMBINING BUSINESSES
Operating Advantages
Financial Advantages
Enhanced growth
opportunities
Diversification
Tax advantages
Mergers between two companies reduces
the acquiring firm’s tax liability
HOW A MERGER IS EFFECTED
Friendly takeover
•Purchase of Assets
•Purchase the Stock
Hostile takeover
•Tender offers
•Proxy fight
Unilever has acquired the shares of Ambrosia International Ltd.,
Mehran International Ltd., and Pakistan Industrial Promoters Ltd.,
which form what is often called the Polka group of ice-cream
companies
Two broadband companies of Pakistan, i.e. Wateen
and Qubee have decided to merge to conduct joint
operations in Pakistan to enhance energy in wireless
broadband market
YOU WILL READ AN ADDITIONAL ARTICLE ON THE MERGERS AND ACQUISITION IN PAKISTAN AT FOOT NOTE OF THIS SLIDE
International - Mergers and AcquisitionsMergers & Acquisitions in Omanby Taimur MalikLegal Advisor, Middle East & North Africa Region, Vale Minerals and Metals
PUBLISHED:
You will find the Article in foot notes