saif final report

Management Organizational Policies & Practices

Topic:

Merger & Acquisitions

Submitted To:

Dr. Amna Yousaf

Submitted By:

Muhammad Habib Ullah FA11-MSPM-022Saif-ul-Haq FA11-MSPM-

023 Aima Khalid FA11-MSPM-024

COMSATS Institute of Information Technology Lahore. [1]

Contents

Executive Summary:........................................................................................................5

Merger..............................................................................................................................6

types of merger................................................................................................................6

horizontal merger.............................................................................................................7

vertical merger.................................................................................................................7

benefits of merger............................................................................................................8

.............................................................................................................................

Acquisition........................................................................................................................9

Benefits of acquisition......................................................................................................9

Disadvantages of acquisiton..........................................................................................10

Hostile Takeover............................................................................................................10

Types of acquisitions......................................................................................................11

Pros and Cons...............................................................................................................12

Distinction b/w M & A.....................................................................................................13

Synergy..........................................................................................................................14

Successful mergers........................................................................................................15

unsuccessful mergers16

utter failure……………………………………………………………………...………………17

Examples of Merger.......................................................................................................18

Examples of Acquisitions...............................................................................................19

Hostile Takeover case study..........................................................................................19

Issues of Concern..........................................................................................................22

Conclusion ....................................................................................................................23


AcknowledgementsAcknowledgements

We start this acknowledgment with the name of most merciful, omnipotent and

omnipresent Allah, who has made us energetic enough to accomplish this task with

enough concentration and devotion, and finally blessed us with success. We cannot

thank Him enough.

We offer our humblest thanks from the deep sense of heart to Holy Prophet Hazrat

Muhammad (PBUH) who implicitly culminates for ever a symbol of guidance and

knowledge to all the humanity.

We offer our humblest thank to Madam Dr. Amna yousaf for providing us such a nice

opportunity to improve our practical knowledge.


Executive Summary:

In the world of growing economy and globalization, major companies on both domestic and international markets struggle to achieve the optimum market share. Every day business people from top to lower management work to achieve a common goal. Mergers and acquisitions are the most frequently used methods of growth for companies in the twenty first century. Mergers and acquisitions present a company with a potentially larger market share and open it up to a more diversified market. At times, a merger or an acquisition simply makes a company larger, expands its staff and production, and gives it more financial and other resources to be a stronger competitor on the market. A merger is considered to be successful, if it increases the acquiring firm’s value. In everyday language, the term "acquisition" tends to be used when a larger firm absorbs a smaller firm, and "merger" tends to be used when the combination is portrayed to be between equals. Merger may be of four type’s horizontal, vertical, market extension and conglomerate merger. All these have been defined in the report. Then we have discussed the benefits of mergers.To make the process of mergers and acquisitions fair for both the consumers and firms in the market several controls have been put into place to regulate M&As.A company can buy another company with cash, stock or a combination of the two. Another possibility, which is common in smaller deals, is for one company to acquire all the assets of another company this process is called acquisition. Then advantages and disadvantages of acquisition has been discussed. Hostile takeover is type of acquisition in which one company doesn’t get any agreement with other company’s management to acquire it, but it directly contact to its shareholders and influence that the management should be changed so that they can achieve their goal of acquisition of that company.

Examples of successful and unsuccessful merger and acquisitions have been given then conclusion is that M&A’s are the most critical and beneficial option for a company that is in loss and wants to retain its customers and market share.


Merger

A merger is a combination of two or more corporations in which only one corporation survives and the merged corporations go out of business.

The entire merger process is usually kept secret from the general public, and often from the majority of the employees at the involved companies. Since the majority of merger attempts do not succeed, and most are kept secret, it is difficult to estimate how many potential mergers occur in a given year.

Reasons of merger

A merger may be done due to number of reasons, some of which are beneficial to the shareholders, some of which are not. One use of the merger, for example, is to combine a very profitable company with a losing company in order to use the losses as a tax write-off to offset the profits. Increasing one's market share is another major use of the merger, particularly amongst large corporations. By merging with major competitors, a company can come to dominate the market they compete in, giving them a free hand with regard to pricing and buyer incentives. Another type of popular merger brings together two companies that make different, but complementary, products. This may also involve purchasing a company which controls an asset your company utilizes somewhere in its supply chain. Major manufacturers buying out a warehousing chain in order to save on warehousing costs.PayPal's merger with eBay is good example, as it allowed eBay to avoid fees they had been paying, while tying two complementary products together.

Types of Merger

. Horizontal Mergers

Horizontal mergers occur when two companies sell similar products to the same markets. A horizontal merger is an acquisition of a competitor with an intention to increase the market concentration, and often also to increase the probability of collusions.


A merger between Coca-Cola and the Pepsi beverage division, for example, would be horizontal in nature. The goal of a horizontal merger is to create a new, larger organization with more market share. Because the merging company’s business operations may be very similar, there may be opportunities to join certain operations, such as manufacturing, and reduce costs.

Vertical Mergers

A vertical merger joins two companies that may not compete with each other, but exist in the same supply chain. An automobile company joining with a parts supplier would be an example of a vertical merger. Such a deal would allow the automobile division to obtain better pricing on parts and have better control over the manufacturing process.

In other words it is a merger between two companies which have a buyer and seller relationship. Hence for example if company which manufactures computers decides to merge with a company which produces processors or a sugar company decides to takeover or merge with a sugarcane producing company will be an example of vertical merger.

Hence by vertically merging one company seeks to achieve reduction in costs associated with raw materials, as well as reduction in transaction costs, transportation cost and other such costs.

Types of Vertical Merger

Vertical merger can be of two types

1. Backward Integration: In this type of Merger Company purchases or merges with the company which is the suppliers of raw materials for the purchasing company and hence it is called backward integration.

2. Forward Integration: In this type of merger, it is the supplier of raw material which purchases the company to which it is supplying; hence it is called forward integration.

Market Extension Mergers

The main benefit of a market extension merger is to help two organizations that may provide similar products and services grow into markets where they are currently weak. Rather than try to establish a retail presence.


In Europe, Wal-Mart could merge with a European retailer that is already successful and has good brand recognition. Even though the two organizations are both big-box retailers selling similar products, they have found success in different parts of the world. As a single organization, they have a diverse, global presence.

Product Extension Mergers

Two companies may merge when they sell products into different niches of the same markets. A manufacturer of high-end stoves may merge with a company that makes budget-conscious models. The combined organization now has a complete product line that spans various price points.

Conglomerate Mergers

Conglomerate mergers occur when two organizations sell products in completely different markets. There may be little or no synergy between their product lines or areas of business. The benefit of a conglomerate merger is that the new, parent organization gains diversity in its business portfolio. A shoe company may join with a water filter manufacturer in accordance with a theory that business would rarely be down in both markets at the same time.

Benefits of Mergers

1. Economies of scale. This occurs when a larger firm with increased output can reduce average costs. Different economies of scale include:

technical economies if the firm has significant fixed costs then the new larger firm would have lower average costs

bulk buying – discount for buying large quantities of raw materials

financial – better rate of interest for large company

2. International Competition. Mergers can help firms deal with the threat of multinationals and compete on an international scale

3. Mergers may allow greater investment in R&D: This is because the new firm will have more profit. This can lead to a better quality of goods for consumers.


Acquisitions

A company can buy another company with cash, stock or a combination of the two. Another possibility, which is common in smaller deals, is for one company to acquire all the assets of another company.

Reasons of acquisition

An acquisition may be slightly different from a merger. In fact, it may be different in name only. Like mergers, acquisitions are actions through which companies seek economies of scale, efficiencies and enhanced market visibility. Unlike all mergers, all acquisitions involve one firm purchasing another. There is no exchange of stock or consolidation as a new company. Acquisitions are often agreeable, and all parties feel

satisfied with the deal. Other times, acquisitions are more hostile.

In an acquisition, as in some of the merger deals we discuss above, a company can buy another company with cash, stock or a combination of the two. Another possibility, which is common in smaller deals, is for one company to acquire all the assets of another company. Company X buys all of Company Y's assets for cash, which means that Company Y will have only cash (and debt, if they had debt before). Of course, Company Y becomes merely a shell and will eventually liquidate or enter another area of business.

Another type of acquisition is a reverse merger, a deal that enables a private company to get publicly-listed in a relatively short time period. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly-listed shell company, usually one with no business and limited assets. The private company reverse merges into the public company, and together they become an entirely new public corporation with tradable shares.

Advantages of acquisition

Advantages of acquisition are:

Speed: It provides ability to speedily acquire resources and competencies not held in house. It allows entry into new products and new markets. Risks and costs of new product development decrease.

Market power: It builds market presence. Market share increases. Competition decrease. Excessive competition can be avoided by shut down of capacity. Diversification is aggrieved. Synergistic benefits are gained.


Overcome entry barrier: It overcomes market entry barrier by acquiring an existing organization. The risk of competitive reaction decrease.

Financial gain: Organization with low share value or low price earnings ratio can be acquired to take short term gains through assets stripping.

Resources and competencies: Acquisition of resources and competencies not available in house can be a motive for merger and acquisition.

Stakeholder expectations: Stakeholder may expect growth through acquisitions.

Disadvantage of acquisition:

Disadvantage of acquisition are;

Integration problems: The activities of new and old organizations may be difficult to integrate, cultural fit can be problematic. Employees may resist it.

High cost: The acquirer may pay high cost, especially in cases of hostile takeover bids. Value may not be added for the acquirer.

Financial consequences: The returns from acquisitions may not be attractive. Executed cost saving may not materialize.

Unrelated diversification: This may create problem of managing resources and competencies.

Hostile Takeover

A takeover is considered "hostile" if the target company’s board rejects the offer, but the bidder continues to pursue it, or the bidder makes the offer without informing the target company's board beforehand.”

Types of takeovers


There are two types of acquisition.

Legal Context

From legal perspective, takeover is of two types:

1. Friendly or Negotiated Takeover2. Hostile Takeover

Friendly or Negotiated Takeover

Friendly takeover means takeover of one company by change in its management & control through negotiations between the existing promoters and prospective investor in a friendly manner. Thus it is also called Negotiated Takeover. This kind of takeover is resorted to further some common objectives of both the parties.


Hostile Takeover

Hostile takeover is a takeover where one company unilaterally pursues the acquisition of shares of another company without being into the knowledge of that other company. The most dominant purpose which has forced most of the companies to resort to this kind of takeover is increase in market share.

BUSINESS CONTEXT

In the context of business, takeover is of three types:

Horizontal Takeover: Takeover of one company by another company in the same industry. The main purpose behind this kind of takeover is achieving the economies of scale or increasing the market share. E.g. takeover of Henkel by Jyothy Laboratories, Patni Computers by iGate.

Vertical takeover: Takeover by one company of its suppliers or customers. The former is known as backward integration and latter is known as Forward integration. E.g. takeover of Sona Steerings Ltd. By Maruti Udyog Ltd

Conglomerate takeover: Takeover of one company by another company operating in totally different industries. The main purpose of this kind of takeover is diversification.

Pros and cons of takeover

While pros and cons of a takeover differ from case to case, there are a few worth mentioning.

Pros:

1. Increase in sales/revenues (e.g. Procter & Gamble takeover of Gillette)

2. Venture into new businesses and markets

3. Profitability of target company

4. Increase market share

5. Decrease competition (from the perspective of the acquiring company)

6. Reduction of overcapacity in the industry

7. Enlarge brand portfolio (e.g. L'Oréal's takeover of Bodyshop)


8. Increase in economies of scale

Cons:

1. Goodwill often paid in excess for the acquisition.

2. Reduced competition and choice for consumers in oligopoly markets. (Bad for consumers, although this is good for the companies involved in the takeover)

3. Likelihood of job cuts.

4. Cultural integration/conflict with new management

5. Hidden liabilities of target entity.

6. The monetary cost to the company.

7. Lack of motivation for employees in the company being bought up.

Distinction between Mergers and Acquisitions

Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things.

When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it's technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal as a merger, deal makers and top managers try to make the takeover more palatable.


A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition.

Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders

Business deals are often referred to as mergers when they are really acquisitions. This is mainly done as a public relations ploy to soften any hard feelings among the company being acquired and its key customers. A true merger occurs when two or more companies of roughly equal size come together to form a new entity. In this scenario, money need not change hands from one company to another.

In an acquisition, a company is paying cash or stock for an ownership stake in another company. The acquired company then becomes part of the parent organization. Although the word "merger" is used often, most deals that join separate companies are technically acquisitions.

Regardless of their category or structure, all mergers and acquisitions have one common goal: they are all meant to create synergy that makes the value of the combined companies greater than the sum of the two parts. The success of a merger or acquisition depends on whether this synergy is achieved.

Synergy

It is the magic force that allows for enhanced cost efficiencies of the new business. Synergy takes the form of revenue enhancement and cost savings. By merging, the companies hope to benefit from the following:

Staff reductions As every employee knows, mergers tend to mean job losses. Consider all the money saved from reducing the number of staff members from accounting, marketing and other departments. Job cuts will also include the former CEO, who typically leaves with a compensation package.


Economies of scale Size matters. Whether it's purchasing stationery or a new corporate IT system, a bigger company placing the orders can save more on costs. Mergers also translate into improved purchasing power to buy equipment or office supplies - when placing larger orders, companies have a greater ability to negotiate prices with their suppliers. Acquiring new technology – To stay competitive, companies need to stay on top of technological developments and their business applications. By buying a smaller company with unique technologies, a large company can maintain or develop a competitive edge.

Improved market reach and industry visibility Companies buy companies to reach new markets and grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones.

Sadly, synergy opportunities may exist only in the minds of the corporate leaders and the deal makers. Where there is no value to be created, the CEO and investment bankers - who have much to gain from a successful M&A deal - will try to create an image of enhanced value. The market, however, eventually sees through this and penalizes the company by assigning it a discounted share price.

Successful, Unsuccessful Mergers and Hostile Takeover

Successful Mergers: (The Good…)

1. Sirius/XM radio merger

On July 29, 2008, satellite radio officially had one provider when Sirius Satellite Radio joined forces with rival XM Satellite Radio. The merger was officially announced over a year before, in February 2007, but the actual merger was delayed due to one tiny problem – when satellite radio first began in 1997, the FCC granted only two licenses under one condition: that either of the holders would not acquire control of the other.


So Sirius and XM filed the proper paperwork with the FCC, allowed the FCC to investigate the merger, and waited patiently for the approval they needed. And although time will tell if the new Sirius XM company will succeed in the long-run, I consider this merger a success due to the number of big names recently added to their roster (Oprah, Howard Stern, Martha Stewart), as well having the foresight to combine forces in a down market.

Exxon-Mobil

Big oil got even bigger in 1999, when Exxon and Mobil signed a $81 billion agreement to merge and form Exxon Mobil. Not only did Exxon Mobil become the largest company in the world, it reunited its 19th century former selves, John D. Rockefeller’s Standard Oil Company of New Jersey (Exxon) and Standard Oil Company of New York (Mobil). The merger was so big, in fact, that the FTC required a massive restructuring of many of Exxon & Mobil’s gas stations, in order to avoid outright monopolization (despite the FTC’s 4-0 approval of the merger).

ExxonMobil remains the strongest leader in the oil market, with a huge hold on the international market and dramatic earnings. In 2008, ExxonMobil occupied all ten spots in the “Top Ten Corporate Quarterly Earnings” (earning more than $11 billion in one quarter) and it remains one of the world’s largest publicly held company (second only to Wal-Mart).

Failed Mergers: (The Bad…)

New York Central and Pennsylvania Railroad

Merger failures didn’t exist in just the past few decades. In 1968, the New York Central and Pennsylvania railroads merged to become to the 6th largest corporation (at the time) in America, Penn Central. Yet two years later, they filed for bankruptcy protection .

The merger seemed right on paper, but these railroads were actually century-old rivals, desperately trying to avoid the trend towards cars and airplanes and away from trains. But these trends continuing anyways and the railroads found themselves unable to keep up with the rising costs of employees, government regulations, and facing major cost-cutting. Others also claim a lack of long-term planning, culture clashes between the two railroads, and poor management.

Daimler Benz/Chrysler ($37B)


In 1998, Mercedes-Benz manufacturer Daimler Benz merged with U.S. auto maker Chrysler to create Daimler Chrysler for $37 billion. The logic was obvious: create a trans-Atlantic car-making powerhouse that would dominate the markets. But by 2007, Daimler Benz sold Chrysler to the Cerberus Capital Management firm, which specializes in restructuring troubled companies, for a mere $7 billion.

What happened? It may be another case of corporate culture clash. Chrysler was nowhere near the league of high-end Daimler Benz, and many felt that Daimler strutted in and tried to tell the Chrysler side how things are done. Such clashes always work to undermine the new alliance; combine that with dragging sales and a recession, and you have a recipe for corporate divorce.

Utter Failures (…And the Ugly…)

Sprint/Nextel

In 2005, another major communication merger occurred, this time between Sprint and Nextel Communications. These two companies believed that merging opposite ends of a market’s spectrum – personal cell phones and home service from Sprint, and business/infrastructure/transportation market from Nextel – would create one big happy communication family (for only $35 billion).

But the family did not stay together long; soon after the merger, Nextel executives and managers left the new company in droves, claiming that the two cultures could not get along. And at the same time, the economy started to take a turn for the worse, and customers (private and business alike) expected more and more from their providers. Competition from AT&T, Verizon, and the iPhone drove down sales, and Sprint/Nextel began lay-offs. Its stocks plummeted, and for all those involved, the merger clearly failed.

AOL/Time Warner

At the height of the Internet craze, two media merged together to form (what was seen as) a revolutionary move to fuse the old with the new. In 2001, old-school media giant Time Warner consolidated with American Online (AOL), the Internet and email provider of the people, for a whopping $111 billion. It was considered the combining of the best of both worlds: print and electronic, together at last!


But the synergy of these two dynamically different companies never occurred. The dot-com bust, and the decline of dial-up Internet access (which AOL refused to give up) spelled disaster for the new company.

Since the merger, Time Warner’s stock has dropped 80%. In fact, this past May, the CEO of Time Warner, Jeff Bewkes, embarrassingly announced that the marriage of AOL and Time Warner was dissolved.

Examples of merger

Major joint ventures 1981 Galderma 1905 Merger between Nestlé and Anglo-Swiss Condensed Milk Company 1929 Merger with Peter, Cailler, Kohler Chocolates Suisses S.A 1947 Merger with Alimentana S.A. (Maggi) 1969 Vittel (equity interest) 1971 Merger with Ursina-Franck 1974 L'Oreal (equity interest) Dowoud and Yamaha = dhoom Sony and Ericson = sonyericson Luminar + gold star = LG

Examples of acquisition

1977 Acquisition of Alcon (2002: partial IPO) 1985 Acquisition of Carnation 1988 Acquisition of Buitoni-Perugina 1988 Acquisition of Rowntree 1990 Cereal Partners Worldwide 1991 Beverage Partners Worldwide (formerly CCNR) 1992 Acquisition of Perrier 1998 Acquisitions of San Pellegrino and Spillers Pet foods 2000 Acquisition of Power Bar 2001 Acquisition of Ralston Purina 2002 Acquisition of Schöller and Chef America 2002 Dairy Partners Americas and Laboratories innéov


2003 Acquisition of Mövenpick, Powwow and Dreyer's 2004 Acquisition of Valio (ice cream activities) 2005 Acquisition of Wagner, Protéika, Musashi Polka + walls = walls Dairy queen + haleeb = haleeb dairy queen

Hostile takeover: The battle Kraft/CadburyCadbury:

Cadbury is a confectionery company owned by Kraft Foods and is the industry's second-largest globally after Mars, Incorporated. Headquartered in Uxbridge, London, United Kingdom, the company operates in more than 50 countries worldwide.

The company was known as Cadbury Schweppes plc from 1969–2008 until its demerger, in which its global confectionery business was separated from its US beverage unit (now called "Dr Pepper Snapple Group"). It was also a constant constituent of the FTSE 100 from the index's 1984 inception until its 2010 Kraft Foods takeover.

2007-present

In October 2007, Cadbury announced the closure of the Somerdale Factory, Keynsham, formerly and part of Fry's. Between 500 and 700 jobs were affected by this change. Production transferred to other plants in England and Poland.

In 2008 Monkhill Confectionery, the Own Label trading division of Cadbury Trebor Bassett was sold to Tangerine Confectionery for £58million cash. This sale included factories at Pontefract, Cleckheaton and York and a distribution centre near Chesterfield, and the transfer of around 800 employees.

In mid-2009 Cadbury replaced some of the cocoa butter in their non-UK chocolate products with palm oil. Despite stating this was a response to consumer demand to improve taste and texture, there was no "new improved recipe" claim placed on New Zealand labels. Consumer backlash was significant from environmentalists and chocolate lovers. By August 2009, the company announced that it was reverting to the use of cocoa butter in New Zealand. In addition, they would source cocoa beans through Fair Trade channels In January 2010 prospective buyer Kraft pledged to honor Cadbury's commitment


Kraft Foods takeover:

On 7 September 2009 Kraft Foods made a £10.2 billion (US$16.2 billion) indicative takeover bid for Cadbury. The offer was rejected, with Cadbury stating that it undervalued the company. Kraft launched a formal, hostile bid for Cadbury valuing the firm at £9.8 billion on 9 November 2009.Business Secretary Peter Mendelssohn warned Kraft not to try to "make a quick buck" from the acquisition of Cadbury. On 19 January 2010, it was announced that Cadbury and Kraft Foods had reached a deal and that Kraft would purchase Cadbury for £8.40 per share, valuing Cadbury at £11.5bn (US$18.9bn). Kraft, which issued a statement stating that the deal will create a "global confectionery leader", had to borrow £7 billion (US$11.5bn) in order to finance the takeover.

The Hershey Company, based in Pennsylvania, manufactures and distributes Cadbury-branded chocolate (but not its other confectionery) in the United States and has been reported to share Cadbury's "ethos". Hershey had expressed an interest in buying Cadbury because it would broaden its access to faster-growing international markets. But on 22 January 2010, Hershey announced that it would not counter Kraft's final offer.

The acquisition of Cadbury faced widespread disapproval from the British public, as well as groups and organizations including trade union Unite, who fought against the acquisition of the company which, according to Prime Minister Gordon Brown, was very important to the British economy. Unite estimated that a takeover by Kraft could put 30,000 jobs "at risk", and UK shareholders protested over the Mergers and Acquisitions advisory fees charged by banks. Cadbury's M&A advisers were UBS, Goldman Sachs and Morgan Stanley. Controversially, RBS, a bank 84% owned by the United Kingdom Government, funded the Kraft takeover.

On 2 February 2010, Kraft secured over 71% of Cadbury's shares thus finalizing the deal. Kraft had needed to reach 75% of the shares in order to be able to delist Cadbury from the stock market and fully integrate it as part of Kraft. This was achieved on 5 February 2010, and the company announced that Cadbury shares would be de-listed on 8 March 2010.

On 3 February 2010, the Chairman Roger Carr, chief executive Todd Stitzer and chief financial officer Andrew Bonfield all announced their resignations. Stitzer had worked at the company for 27 years.

On 9 February 2010, Kraft announced that they were planning to close the Somerdale Factory, Keynsham, with the loss of 400 jobs. The management explained that existing plans to move production to Poland were too advanced to be realistically reversed, though assurances had been given regarding sustaining the plant. Staff at Keynsham


criticized this move, suggesting that they felt betrayed and as if they have been "sacked twice". On 22 April 2010, Phil Rumble, the man behind the famous Gorilla advertisement, announced his plans to leave the Cadbury Company in July following Kraft's takeover.

In June 2010 the Polish division, Cadbury-Wedel, was sold to Lotte of Korea. The European Commission made the sale a condition of the Kraft takeover. As part of the deal Kraft will keep the Cadbury, Hall's and other brands along with two plants in Skarbimierz. Lotte will take over the plant in Warsaw along with the E Wedel brand.

Executive Pay:

In 2008 Todd Stitzer, Cadbury's CEO, was paid a £2,665,000 bonus. Combined with his annual salary of £985,000 and other payments of £448,000 this gives a total remuneration of over £4 million.

Accounting:

In July 2007, Cadbury Schweppes announced that it would be outsourcing its transactional accounting and order capture functions to Shared Business Services (SBS) centers run by a company called Genpact, (a business’s services provider) in India, China, and Romania. This was to affect all business units and be associated with U.S. and UK functions being transferred to India by the end of 2007, with all units transferred by mid-2009. Depending on the success of this move, other accounting Human Resources functions may follow. This development is likely to lead to the loss of several hundred jobs worldwide, but also to several hundred jobs being created, at lower salaries commensurate with wages paid in developing countries.

Issues of concern

Integration difficulties: Differing financial and control system can make the integration of the firms difficult Example: Intel’s acquisition of DEC’s semiconductor division. Inadequate evaluation of target: “Winners curse “bid causes acquirer to overpay for firm. Example: Marks and Spencer’s acquisition of Book Brothers. Large or extraordinary debt: Costly debt can create onerous burden on cash outflows. Example: AgriBioTech’s acquisition of dozens of small seed firms. Problems with Acquisitions


Inability to achieve synergy: Justifying acquisitions can increase the estimate of expected benefits. Overly Diversified: Acquirer doesn’t have expertise required to manage unrelated business. Managers overly focused on acquisitions: Managers may fail to objectively access. Problems with Acquisitions

Retention of key employees

Compliance with applicable laws

Alignment of compensation and benefit plans

Cultural fit

Employee communication

Conclusion:

M&A’s are the most critical and beneficial option for a company that is in loss and wants to retain its customers and market share. In M&A Company can enjoy benefit of greater expertise, low competition and skilled labor. So, both companies can retain their existing customers as well as they can increase number of customers and market share and ultimately market growth will at higher rates and customer satisfaction can be achieved. Labor has chance to work in diverse culture and under same or diversified management.


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