Unit 9: M&As

1 + 1 = 3 ?

Mergers and Acquisitions

Reasons for M&As

Discussion

1. Why do people get married?

2. Why do companies merge with/

acquire each other?

A takeover/ An Acquisition

When one company takes over another and clearly establishes 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.

Source: http://en.wikipedia.org/wiki/Mergers_and_acquisitions#Distinction_between_mergers_and_acquisitions

A takeover/ An Acquisition

A merger happens when two firms 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". The firms are often of about the same size. Both companies' stocks are surrendered and new company stock is issued in its place.

Source: http://en.wikipedia.org/wiki/Mergers_and_acquisitions#Distinction_between_mergers_and_acquisitions

In practice

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 is technically an acquisition.

Ways to acquire a company

A Raid or

A Takeover Bid

Ways to acquire a company

A Raid Buying as many of a company’s stocks as possible on the stock market.

Ways to acquire a company

A takeover Bid A public offer to a company’s stockholders to buy their stocks a a certain price during a limited period of time.

Types of Mergers Horizontal

Two companies making the same products combined

Vertical

A company either acquires or merges with another company in an immediately-related stage of production and distribution.

Diversification

A company acquires another company in an entirely different sphere.

Example

Example

Types of Mergers

Reasons for Horizontal Mergers

- To reduce competition - To increase market share - To acquire additional plants and

equipment- To achieve synergy and economies of

scales

Types of Mergers Reasons for Vertical Mergers - To guarantee the supply and cost of raw material and

components. - To be closer to the customers, by cutting out the

wholesaler for example and dealing directly with the retail trade.

Reasons for Diversification Mergers

- To move into a sector which promises greater growth or profits.

Types of Mergers Further classification/ M&A waves Period Name Facet

1889 - 1904 First Wave Horizontal mergers

1916 - 1929 Second Wave Vertical mergers

1965 - 1989 Third WaveDiversified conglomerate mergers

1992 - 1998 Fourth WaveCongeneric mergers; Hostile takeovers; Corporate Raiding

2000 - Fifth Wave Cross-border mergers

Problems with Mergers

Damage of a company’s image, goodwill and share value.

Unmanageable and inefficient structures (such as large conglomerates)

Drainage of Human Capital … … …

Problems with Mergers

Key terms Takeover Merger Acquisition A raid Buyout LBOs = Leveraged buyouts MBO = Management buyouts Vertical Horizontal

Horizontal Diversification Hostile

Writing practice

Language Practice

Cause and Effect Expressions

Page 50

Speaking practice

Work in groups of 3 or 4 and make a 15-minute presentation on

REASONS FOR MERGERS

PROBLEMS WITH MERGERS

TYPES OF MERGERS