Mergers And Takeovers 5m6yt

Mergers and Takeovers

Mergers and acquisitions (takeover) (abbreviated M&A) are both an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary.

When two companies to form one new firm, it can be: •

voluntary, also known as a ‘merger’

•

forced, when it is known as a ‘takeover’

Mergers and takeovers Merger -> Two or more businesses together and operate as one organization with shared management. Takeover(acquisition ) -> occurs when one company takes over another and completely establishes itself as the new owner (in which case the target company still exists as an independent legal entity controlled by the acquirer

Types of Mergers Mergers appear in three forms, based on the competitive relationships between the merging parties. ● Horizontal merger -> one firm acquires another firm that produces and sells an identical or similar product in the same geographic area and thereby eliminates competition between the two firms. ● Vertical Merger ->one firm acquires either a customer or a supplier. ● Conglomerate mergers ->encom all other acquisitions, including pure conglomerate transactions where the merging parties have no evident relationship

Types of takeovers Friendly takeovers: is an acquisition which is approved by the management.. In an ideal world, if the board feels that accepting the offer serves the shareholders better than rejecting it, it recommends the offer be accepted by the shareholders

Hostile takeovers: allows a suitor to take over a target company whose management is unwilling to agree to a merger or 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 directly after having announced its firm intention to make an offer

Reverse takeovers: is a type of takeover where a private company acquires a

• • •

public company.A reverse take-over is an acquisition or acquisitions in a twelvemonth period which for an AIM company would: exceed 100% in any of the class tests; result in a fundamental change in its business, board or voting control; in the case of an investing company, depart substantially from the investing strategy stated in its ission document;

Backflip takeovers: is any sort of takeover in which the acquiring company turns itself into a subsidiary of the purchased company.

Motives of mergers and takeovers •Quick way of expansion •Cheaper than internal growth •Costs saving by cross selling •Cash available •Economy of scale •Consolidating market position •Control •Globalization •Diversification

Advantages - Economies of scale - Greater Efficiency - Ability to speedily acquire resources and competencies not held in house. - It builds market presence - Protect an industry from closing - It overcomes market entry barrier -Diversifaction

Disadvantages -The activities of new and old organizations may be difficult to integrate -The acquirer may pay high cost - Create employee dissatisfaction -Too much managerial focus on acquisitions can be detrimental to internal development. - conflicting business strategies

The future Although a number of factors influence mergers and acquisitions, the market is the primary force that drives them. The rash of mergers in the telecommunications industry ed for many of these mergers, but companies in other industries were involved as well. Another factor in the rise in mergers was a booming economy, which grew at unprecedented levels : many companies were forced to downsize, and the number of major mergers decreased accordingly. Improvements in the economy, as well as potential legislative changes, could very well spark another wave of mergers.