Unit 9 - Takeover

Question 1

What is a takeover/acquisition?

Answer 1

When one firm buys a majority stake in another firm

Question 2

Examples of takeovers - 2 of them

Answer 2

. Facebook paid $19 billion for a friendly takeover of WhatsApp

. Facebook paid $1 billion for Instagram in 2012 which was shocking as the business only had 13 employees

Question 3

Friendly takeover definition

Answer 3

Approved by the target company’s shareholders, who generally greenlight deals only if they believe the price per share offer is reasonable

Question 4

Hostile takeover

Answer 4

.When a company’s offer to buy another is not supported by the board of the target company

. The target company then recommends that the shareholders reject the offer

. If the price is high enough then the deal goes through

Question 5

Hostile takeover example

Answer 5

. A US food company launched a hostile bid for Cadbury in 2009

. At first Cadbury was valued at £9.8 billion

. Yet even after the recommendation to reject the offer Kraft eventually succeeded, paying £11.5 billion

Question 6

Takeovers and costs

Answer 6

Takeovers involve high costs and therefore the company making the acquisition needing to have substantial leverage (through borrowing)

Question 7

Why do firms merge or acquire others?

Answer 7

. Faster route to growth

. Promise of synergies

. Reduce the threat from competitors

Question 8

Unsuccessful merger - Example

Answer 8

Merger of Daimler Benz and Chrysler - In 1998, German automaker Daimler-Benz purchased Chrysler for $36 billion in what was then regarded as one of the largest industrial mergers ever. But the potential global powerhouse turned out to be a colossal disappointment. Cultural differences immediately caused a rift between the two companies.

Question 9

Successful merger example

Answer 9

Exxon and Mobil - Resulted in a 23% increased in market share, was crucial for the company’s survival and growth in the long term

Question 10

Takeovers and stakeholders (customers and suppliers)

Answer 10

. At times takeovers can upset and confuse customers as did the Cadbury takeover where customers were upset that the ‘British’ brand would be owned by an American company

. Suppliers may be changed

Question 11

Example of a synergie

Answer 11

Sainsbury and Argos have earned greater revenue synergies when they sell to each others customers leading to higher revenue

Question 12

Synergies

Answer 12

Occur when the power of two businesses joined together is greater than if they worked separately

Question 13

What is a merger?

Answer 13

Two firms which are generally equal in size and scope - mutually agree to join together to form a new company

Question 14

Why takeovers fail (2 points)

Answer 14

. Overpayment

. Over expectation

Question 15

Why takeovers fail (2 examples)

Answer 15

. Overpayment

. Over expectation