Busfin 1 Flashcards
occurs when a buyer acquires all or part of assets or business of a selling entity, and where both parties are actively assisting in the purchase transaction.
Acquisition
occurs when two companies combine into one entity
Merger
is the joining together of two
corporations in which one corporation transfer
all its assets to the other, which continues to
exist. In effect, one corporations “swallows”
the other, but the shareholders of the
swallowed company receive shares of the
surviving corporation.
Merger = in corporate law
is a transaction that result in
the transfer of ownership and control of a
corporation.
When one company purchases another
company of an approximately similar
size. The two companies come together to
become one.
Two companies usually agree to merge
when they feel that they can do something
together that they can not do one their
own.
Merger
TYPES OF MERGER
Horizontal Merger
Vertical Merger
Conglomerate Merger
Concentric Merger
Statutory
Subsidiary
Consolidation
A merger that happens between
companies belonging to the same
industry. The companies have businesses
in the same space and are generally
competitors to each other.
- is a feature of an
industry which consist of a large number of
small firms or fragmented industry.
Examples: Boeing-McDonnell
Douglas.
Lipton India and Brooke Bond.
Bank of Mathura with ICICI Bank.
BSES Ltd with Orissa Power Supply Company.
Associated Cement Companies Ltd Damodar Cement.
Horizontal Merger
is a merger between
companies that produce different goods or
offer different services for one common
finished product.
The companies operate at different levels
in the supply chain of the same industry.
The motivation behind such mergers is
cost efficiency, operational efficiency,
increased margins and more control over
the production or the distribution process.
Vertical Merger
A merger between two companies
producing different goods and
services for one specific finished
products.
The merger of the firm that have
actual or potential buyer-seller
relationship.
Example- Car manufacturer
purchasing a tire company.
Vertical Merger
A merger between companies that operate in
completely different and unrelated industries.
A pure _______ merger is between companies with totally nothing in common.
A mixed __________ merger is between companies looking for market or product
extensions.
Conglomerate Merger
is between companies with totally nothing in common.
It involve firms with nothing common.
Pure conglomerate merger
is betweencompanies looking for market or product
extensions.
It involves firms that are looking for product extensions or market extensions.
Mixed conglomerate merger
A merger of firms which are into similar type
of business.
often called a congeneric merger, is the merging of firms that operate in the same industry but do not
have a mutual relationship (such as a buyer-seller relationship).
An example of a congeneric merger is Citigroup’s acquisition of Travelers
Insurance. While both were in the financial
services industry, they had different product
lines.
Another example is when an airline acquires a
tourism industry-related business or if a
newspaper merges with a TV channel.
A concentric merger
is one in which all the
assets and liabilities of the smaller company is
acquired by the bigger (acquiring) company.
As a result, the smaller target company loses
its existence as a separate entity.
Statutory Merger
is one in which the target
company becomes a subsidiary of the bigger
acquiring company. This happens because the
target company may have a known brand or a strong image which would make sense for the acquiring company to retain.
Company A + Company B = (Company A + Company B)
Subsidiary Merger
is one in which both
the companies lose their identity as separate entities and become a part of a bigger new company. This is generally the case with both
the companies being of the same size.
Consolidation Merger
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
The assets of company Y may
be sold to company X.
Once this is done company Y
is then legally terminated and
company X survives.
By purchase of asset
The common share of company Y may be purchased by company X. When company X holds all the share of company Y, it is dissolve.
by purchase of common shares
The company X may give
their shares to stakeholders of company Y for its net assets. The company Y terminated by its shareholder who now holds share of company X.
by exchanging of shares for assets
Company X gives its shares to the shareholder of company Y and then company X is terminated.
by exchanging shares for shares
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
Why do mergers fail ?
Lack of human integration
Mismanagement of cultural issues
Lack of communication
When one company takes over another and
clearly established itself as the new owner, the
purchase is called an _____.
is generally considered negative in nature.
Acquisition
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.
Takeovers
A takeover attempt that is
strongly resisted by the
target firm
Hostile Takeover
Target company’s
management and board of
directors agree to a merger or acquisition by another
company.
Friendly Takeover
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
