MERGERS & OTHER BUSINESS COMBINATIONS

Consolidations, Mergers & Holding Company

Result of an agreement between 2 or more companies to join their

operations together

MERGERS

A

B CAOccurs when two (or more)

corporations combine to create an entirely new corporate entity. None

of the company survive.

CONSOLIDATION / ACQUISITION

A

B CA

BC

A holding company is a firm that owns sufficient voting stock in one or more other companies so as to have effective control

over them

DEFINITIONS

HOLDING COMPANY

WHY MERGERS AND ACQUISITIONS

To gain new technology

Grow revenue

Market Share

Strategic assets

TYPES OF MERGERS

Occurs between firms that have

related business interests

Congenric Mergers

Horizontal

Vertical

Combination of two firms

engaged in the same business

When a company merge with its

Suppliers

Upstream DownstreamWhen a company merge

with its Product distributors or customers

EXAMPLES

HP and Compaq

Congenric MergersHorizontal

Vertical

Time Warner Incorporated, a major cable operation, and the

Turner Corporation, which produces CNN, TBS

Upstream Downstream

K & N’s

Daimler-Benz and Chrysler

TYPES OF MERGERS

These mergers combine when

unrelated businesses combine

CONLOMERATE

Sony

Sony, which had previously been primarily in the consumer electronics manufacturing

business, moved into the media industry through a series of conglomerate mergers. In

1989, Sony merged with American film and television production corporation

Columbia Pictures Entertainment Inc., made up of Columbia Pictures and Tristar

Pictures, from Coca-Cola for $3.4 billion. In 1991, the new company became Sony's

key media division.

CONGENRIC MERGER

Advantages

New Vision

Modification of input

Employment

opportunity

Diversifications in

operations

Ability to compete

Diversification in

Skills

Market Share

Cost reduction

Capital Resource

Disadvantages

Communication

gap may arise

Cultural Fit

Good will affected

Customer may

become dis-loyal

Employee Lay off

Management

Conflicts

Failure Merger

HP and Compaq

In 2001, struggling computing giant Hewlett Packard announced it would merge with similarly struggling competitor Compaq. The merger was ill-fated from the

start, as critics pointed out how the HP engineering-driven culture was based on consensus and the sales-driven Compaq culture on rapid decision making. This

poor cultural fit resulted in years of bitter infighting in the new company, and resulted in a loss of an estimated 13 billion dollars in market capitalization.

Though the merger itself was widely regarded a s a failure, the company has hung on, and has been able to make significant cultural and leadership changes

that have resulted in long-term success.

HOLDING COMPANY

The company has stakes in the fertilizer, food, power generation, petrochemicals, automation and terminal storage industries.

Controlling interest is the principal advantage of holding companies

HOW A MERGER IS EFFECTED

How merger is effected

Friendly Take Over

Purchase of assets

Purchase the stock

Hostile Takeover

Tender offer

Proxy Fight

OTHER FORMS OF CORPORATE RESTRUCTURING

Sell-Off

Spin-offs

Going Private

Liquidations

ANY QUESTIONS