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    Mergers, Acquisitions & Corporate Restructuring

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    Praveen N
    Mergers and acquisitions allow companies to combine operations to create synergies and competitive advantages. A merger combines two companies as equals, while an acquisition sees one company purchase another to make it a subsidiary. Mergers are more expensive due to higher legal costs but allow shared ownership, while acquisitions are faster but involve one company taking control. Different types of mergers include horizontal between similar companies, vertical between suppliers and customers, conglomerate between unrelated industries, and concentric between similar but separate markets. Mergers aim to increase revenues, lower costs through synergies, and open new growth opportunities.

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    Mergers, Acquisitions & Corporate Restructuring

    Uploaded by

    Praveen N
    59 views29 pages
    Mergers and acquisitions allow companies to combine operations to create synergies and competitive advantages. A merger combines two companies as equals, while an acquisition sees one company purchase another to make it a subsidiary. Mergers are more expensive due to higher legal costs but allow shared ownership, while acquisitions are faster but involve one company taking control. Different types of mergers include horizontal between similar companies, vertical between suppliers and customers, conglomerate between unrelated industries, and concentric between similar but separate markets. Mergers aim to increase revenues, lower costs through synergies, and open new growth opportunities.

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    M&AM

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    M&A

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    Mergers and acquisitions allow companies to combine operations to create synergies and competitive advantages. A merger combines two companies as equals, while an acquisition sees one company purchase another to make it a subsidiary. Mergers are more expensive due to higher legal costs but allow shared ownership, while acquisitions are faster but involve one company taking control. Different types of mergers include horizontal between similar companies, vertical between suppliers and customers, conglomerate between unrelated industries, and concentric between similar but separate markets. Mergers aim to increase revenues, lower costs through synergies, and open new growth opportunities.

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    © All Rights Reserved
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    Download as ppt, pdf, or txt
    59 views29 pages

    Mergers, Acquisitions & Corporate Restructuring

    Uploaded by

    Praveen N
    Mergers and acquisitions allow companies to combine operations to create synergies and competitive advantages. A merger combines two companies as equals, while an acquisition sees one company purchase another to make it a subsidiary. Mergers are more expensive due to higher legal costs but allow shared ownership, while acquisitions are faster but involve one company taking control. Different types of mergers include horizontal between similar companies, vertical between suppliers and customers, conglomerate between unrelated industries, and concentric between similar but separate markets. Mergers aim to increase revenues, lower costs through synergies, and open new growth opportunities.

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    of 29

    Mergers ,

    Acquisitions &
    Corporate
    Restructuring
    What Does Merger Mean?

    • Merger means the combination of two or


    more companies in creation of a new
    entity.
    Benefits of merger
    • Diversification of product and service offerings

    • Increase in plant capacity

    • Larger market share

    • Utilization of operational expertise and research and


    development (R&D)

    • Reduction of financial risk


    Merger
    oA transaction where two firms agree to integrate their
    operations on a relatively co-equal basis because they
    have resources and capabilities that together may
    create a stronger competitive advantage.
    o The combining of two or more companies, generally
    by offering the stockholders of one company
    securities in the acquiring company in exchange for
    the surrender of their stock
    o Example: Company A+ Company B= Company C.
    ACQUISITION

    A transaction where one firms buys another firm with


    the intent of more effectively using a core competence
    by making the acquired firm a subsidiary within its
    portfolio of business
     It also known as a takeover or a buyout
     It is the buying of one company by another.
     Inacquisition two companies are combine together to
    form a new company altogether.
     Example: Company A+ Company B= Company A.
    DIFFERENCE BETWEEN MERGER AND
    ACQUISITION:

    MERGER ACQUISITION
    i. Merging of two organization in to i. Buying one organization by
    one. another.
    ii. It is the mutual decision. ii. It can be friendly takeover or
    iii. Merger is expensive than hostile takeover.
    acquisition(higher legal cost). iii. Acquisition is less expensive than
    iv. Through merger shareholders can merger.
    increase their net worth. iv. Buyers cannot raise their enough
    v. It is time consuming and the capital.
    company has to maintain so much v. It is faster and easier transaction.
    legal issues. vi. The acquirer does not experience
    vi. Dilution of ownership occurs in the dilution of ownership.
    merger.
    Tech Mahindra and Satyam
    merged to form Mahindra
    Satyam.
    Why do mergers fail ?

    • Lack of human integration


    • Mismanagement of cultural issues
    • Lack of communication
    Failed Merger of Daimler
    Chrysler
    Types of Merger

    1. Horizontal Merger
    2. Vertical Merger
    3. Conglomerate Merger
    4. Concentric Merger
    Horizontal Merger

    • Horizontal mergers are those mergers


    where the companies manufacturing
    similar kinds of commodities or running
    similar type of businesses merge with
    each other.
    Examples of Horizontal Merger
    • Lipton India and Brooke Bond.

    • Bank of Madura with ICICI Bank.

    • BSES Ltd with Orissa Power Supply Company.

    • Associated Cement Companies Ltd with Damodar


    Cement.
    Vertical Merger

    • A merger between two companies


    producing different goods or services.
    Example of Vertical Merger
    • Time Warner Incorporated, a major cable operation,
    and the Turner Corporation, which produces CNN,
    TBS, and other programming.

    • Pixar-Disney Merger
    Conglomerate Merger
    A merger between firms that are involved in totally
    unrelated business activities.

    Two types of conglomerate mergers:

    1. Pure conglomerate mergers

    2. Mixed conglomerate mergers involve firms that are


    looking for product extensions or market extensions.
    Conglomerate mergers

    •Product extension conglomerate mergers involve


    firms that sell non-competing products use related
    marketing channels of production processes.
    Examples: Cardinal Healthcare-Allegiance; AOL-Time
    Warner; Phillip Morris-Kraft; Citicorp-Travelers
    Insurance; Pepsico-Pizza Hut; Proctor & Gamble-
    Clorox.
    •Market extension conglomerate mergers join together
    firms that sell competing products in separate
    geographic markets.

    Examples: Scripps Howard Publishing—Knoxville News


    Sentinel; Time Warner-TCI; Morrison Supermarkets-
    Safeway;SBC Communications-Pacific Telesis
    •A pure conglomerate merger unites firms that have no
    obvious relationship of any kind.
    Examples:BankCorp of America-Hughes Electronics
    ;R.J. Reynolds-Burmah Oil & Gas; AT&T-Hartford
    Insurance
    Example of Conglomerate
    Merger
    • Walt Disney Company and the American
    Broadcasting Company.
    Concentric Merger

    • A merger of firms which are into similar


    type of business.
    Example of Concentric Merger
    • Nextlink is a competitive local exchange carrier
    offering services in 57 cities and building a
    nationwide IP network.
    • Concentric, a national ISP, offers dedicated and
    dial-up Internet access, high-speed DSL and
    VPN services across the U.S. and overseas.
    Value creation of Horizontal
    merger
     Revenue Enhancement
     Basic objective is increased Market power & Revenue
    growth
     Revenue growth achieved through lowering prices for
    product & through network externality(enhacing customer
    base)
     Leveraging marketing resources & capabilities
     Cost Savings
     The combination of activities of functional areas leads to
    economies of sales & economies of scope
     New growth opportunities
    Value creation of Vertical
    merger
     Creates value by intergration of a supply chain
     Reduce uncertainties which result in lower transaction
    cost, inventory cost & information cost
     Improves efficiency by cutting out intermediatiers &
    reducing overhead expenses & redundant assets
     Increase the ability to provide a package of products &
    services
    Value creation of Conglomerate
     Better management throgh knowledge transfer
     Risk reduction which inturn lower cost of capital
     Co insurance effect
     Overhead cost can be reduced (in R&D, sales
    etc)
     Improves bargaining power
    lSources of Synergy

    Synergy is created when two firms are combined and can be


    either financial or operating

    Operating Synergy accrues to the combined firm as Financial Synergy

    Added Debt
    Strategic Advantages Economies of Scale Tax Benefits Capacity Diversification?

    r returns on More new More sustainable Cost Savings in Lower taxes on Higher debt May reduce
    vestments Investments excess returns current operations earnings due to raito and lower cost of equity
    - higher cost of capital for private or
    depreciaiton closely held
    - operating loss firm
    er ROC Higher Reinvestment carryforwards
    Longer Growth Higher Margin
    Period
    SYNERGIES RELATED TO
    ACQUISITION.
    • Economies of scale

    • Staff reductions

    • Acquiring new technology

    • Improved market reach and industry visibility

    • Taxation
    Ways of merger – A merger can take place in
    following ways:

    By purchasing of assets

     By purchase of common shares

     By exchanging of shares for assets

     By exchanging of shares for shares


    Takeovers

    A corporate action where an acquiring company


    makes a bid for an acquiree. If the target
    company is publicly traded, the acquiring
    company will make an offer for the outstanding
    shares.
    Takeover might be :
    Hostile Takeover Friendly Takeover
    A takeover attempt that is Target company's
    strongly resisted by the management and board
    target firm of directors agree to a
    merger or acquisition by
    another company.
    WHY SHOULD FIRMS TAKEOVER?

    • To gain opportunities of market growth more quickly than


    through internal means
    • To seek to gain benefits from economies of scale
    • To seek to gain a more dominant position in a national or
    global market
    • To acquire the skills or strengths of another firm to
    complement the existing business
    • To acquire a speedy access to revenue streams that it
    would be difficult to build through normal internal growth
    • To diversify its product or service range to protect itself
    against downturns in its core markets

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