Business Finance ( Mergers, Acquisitions, & Takeovers) 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
corporations in which one corporation transfer
all its assets to the other, which continues to exist.
Merger
one corporations “swallows”
the other, but the shareholders of the
swallowed company receive shares of the
surviving corporation.
Merger
is a transaction that result in
the transfer of ownership and control of a
corporation.
Merger
When one company purchases another
company of an approximately similar
size. The two companies come together to
become one.
Merger
Two companies usually agree to ______
when they feel that they can do something
together that they can not do one their
own.
Merge/ 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.
Horizontal Merger
The companies have businesses
in the same space and are generally
competitors to each other.
horizontal merger
is a feature of an
industry which consist of a large number of
small firms or fragmented industry.
horizontal merger
occurring between
companies producing similar
products, goods and offerings similar
services.
Horizontal merger
This type of merger occurs
frequently as a result of larger
companies attempting to create more
effective economies of scale.
Horizontal Merger
Examples of Horizontal merger
Lipton India and Brooke Bond.
Bank of Mathura with ICICI Bank.
BSES Ltd with Orissa Power Supply Company.
Associated Cement Companies Ltd Damodar Cement.
is a merger between
companies that produce different goods or
offer different services for one common
finished product.
Vertical Merger
The companies operate at different levels
in the supply chain of the same industry.
Vertical Merger
The motivation behind such mergers (vertical mergers)
cost efficiency, operational efficiency,
increased margins and more control over
the production or the distribution process.
A merger between two companies
producing different goods and
services for one specific finished
products.
Vertical Merger
The merger of the firm that have
actual or potential buyer-seller
relationship.
Vertical merger
example scenario of vertical merger
Car manufacturer
purchasing a tire company.
real examples of vertical merger
Time Warner Incorporated, a major cable operation, and the
Turner Corporation, which produces CNN, TBS, and other
programming.
Pixar-Disney Merger
A merger between companies that operate in
completely different and unrelated industries.
Conglomerate Merger
is between
companies with totally nothing in common.
Pure conglomerate
is between
companies looking for market or product
extensions.
mixed conglomerate
A merge between firms that are involved
in totally interrelated business activity.
Conglomerate merger
real examples of conglomerate merger
PepsiCo-Pizza Hut; Proctor &
Gamble-Clorox.
Walt Disney Company and the American
Broadcasting Company.Procter & Gamble Corporation
A merger of firms which are into similar type
of business.
Concentric Merger
often called a
congeneric merger, is the merging of firms
that operate in the same industry
Concentric merger
do not
have a mutual relationship (such as a buyer-seller relationship)
Concentric Merger
example of congeneric merger
Citigroup’s acquisition of Travelers
Insurance.
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.
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
give 5 examples of REASONS OF MERGER
product improvement
goodwill
diversification of risk
future goals
mutual benefits
maximizing profits
expansion of business
economy of scale
increase market share
cost maximization
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
Acquisition
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.
takeover
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
