Mergers & Acquisitions Flashcards
Define merger
An action taken by two companies to combine and perform as a single entity
Define Acquisition
An action taken by one company to buy a controlling interest in the voting stock of another company
Advantages of mergers & acquisitions
- Increase buying power as a result of larger size
- Increase revenue by cross-selling products to each other customers
- Increase market share by combining product lines
- Gain access to new expertise, systems and team of employees who already know how to work together
- Bringing a company under new ownership can also be an opportunity to replace or improve inept management & thereby help a company improve its performance
- In many cases, the primary goal = to reduce overlapping investments & capacities in order to lower ongoing costs
Disadvantages of mergers & acquisitions
- Executives have to agree on how the merger will be financed — & then come up with the money to make it happen
- Managers need to decide who will be in charge after they join forces
- Marketing departments need to figure out how to blend product lines, branding strategies and advertising and sales effort
- Incompatible information systems (including email, websites, accounting software) may need to be rebuilt or replaced in order to operate together seamlessly
- Companies must often deal with layoffs, transfers and changes in job titles and work assignments
- The organisational cultures of the two firms must be harmonised somehow which can result in clashes b/w different values, management styles, communication practices, workplace atmosphere and approaches to managing the changes required to implement the merger
Types of mergers
- Horizontal
- Vertical
- Conglomerate
- Consolidation
Define Horizontal merger
Different companies at the same stage or level
Define Vertical merger
Different stages or levels of the same industry
Define Conglomerate merger
Companies in unrelated industries
Define consolidation merger
Company A & Company B create Company C w/ own BOD & slowly, over time, Company C buys A & B and absorbs them
Define hostile takeover
Acquisition of another company against the wishes of management
2 ways: tender offer & Proxy fighter
Define tender offer
In TO, the buyer (aka raider) = offers to buy a certain number of shares in the corp at a specific price
Price = generally more than current share price, so shareholders = motivated to sell
Raider hopes to get enough shares to take control of corp & replace the existing BOD & management
Define Proxy fight
Raider launches a PR battle for shareholder votes, hoping to gain enough votes to oust the BOD & management
Defences to hostile takeover: Posion pill defense
Targeted company invokes some move that makes it less valuable to the potential raider w/ the hope of discouraging the takeover
common technique = to sell newly issued shares to current shareholders at prices below the market value of the company’s existing shares
instantly increasing the number of shares the raider has to buy
Or company manager may poison the company by borrowing as much money as can which makes it unattractive for takeover because risk is too high
destroys company & reduces its potential survival in the future
Defences to hostile takeover: White Knight tactics
A 3rd company is invited to acquire a company that is in danger of being swallowed up in a hostile takeover
Define Leveraged Buyout (LBO)
Acquisition of a company’s publicly traded shares, using funds that are primarily borrowed, usually with the intent of using some of the acquired assets to pay back the loans used to acquire the company
Popular method of taking over a firm
