Mergers and Acquisitions
Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Every day, Wall Street investment bankers arrange M&A transactions, which bring separate companies together to form larger ones. When they're not creating big companies from smaller ones, corporate finance deals do the reverse and break up companies through spinoffs, carve-outs or tracking stocks.
Mergers and acquisitions can dictate the fortunes of the companies involved for years to come. For a CEO, leading an M&A can represent the highlight of a whole career. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A. This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone.
When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.
A merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created.
In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it's technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal as a merger, deal makers and top managers try to make the takeover more palatable.
A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies.
Cost cutting, discontinuation of product or services ,technological changes, and consolidation due to mergers and acquisitions are commonly legal ac...
Leadership succession in a merger of equals is an article, which examines the implications of leadership succession in an extreme form of mergers, a merger of equals, can yield important findings to better understand what allows some mergers to succeed while others fail (Cheng, 2012). Mergers and acquisitions are much more common these days and only a few of them end up being successes. Even though mergers and acquisitions do not result in much success rate, many organizations still prefer it because, it is used as a cooperative strategy but nowadays it is used for cooperative development. Cultural differences and merger integration can be considered as an important factor in the failure rate, but this study mainly focused on the choice of leadership succession and merge of equals. Mergers of Equals Mergers of equals is the combination of two organizations of similar size to form a single organization.
The September Duke University/CFO Business Outlook survey indicates that three-quarters of the CFOs surveyed expect M&A activity to slow. Of particular interest is the suddenness of this change in expectations. In the prior quarter’s survey, the majority of surveyed CFOs expected M&A to “stay strong through the remainder of 2007.”
Gaughan, P. A., 2002. Mergers, Acquisitions, and Corporate restructuring. 3rd ed.New York: John Wiley & Sons, Inc.
It is proper to present a business definition of merger as it found on legal reference with the ultimate goal in the pursuing of an explanation on which this paper intents to present. A merger in accordance with the textbook is legally defined as a contractual and statuary process in which the (surviving corporation) acquires all the assets and liabilities of another corporation (the merged corporation). The definition go even farther to involve and clarify about what happen to shares by explaining the following; “the shareholders of the merged corporation either are paid for their share or receive the shares of the surviving corporation”. But in simple terms is my attempt to define as the product or birth of a corporation on which typically extends its operation by combining with another corporation. So from two on existence corporations in the process it gets absorbed into becomes one entity. The legal definition also implied more than meet the eye. The terms contractual and statuary, it implied a process on which contracts and statuary measures emerge as measures to regulate, standardized, governing or simply at times may complicate whole process. These terms provide an explicit umbrella and it becomes as part of the agreement formulating or promoting a case for contracts to be precedent, enforced or regulated in a now or in the future under a court of law under the Contract Business Law Statue of Practice. As for what happens to the shares of the involved corporations no more explanation is needed as the already actions mentioned clearly stated of the expectations of a merge’s share involvement.
Merging two companies does not exchange any cash between each other. Merging is usually done in free of cost; this is a likely reason for the high revenue made by the AT Kearney despites challenges faced to them.
whereas, under restructuring, there are several strategies which include, divestiture, bankruptcy, turnaround and liquidation (McBey, B., 2015).
In addition to the pro-competitive economic effect some firms also experience what is known as a post-merger which is basically an incentive for a firm to raise downstream competitor costs by raising upstream market costs. Hence the increased price pressures the previously established downstream prices which cause conflict.
As the business, people put it, to maximize the wealth of shareholders (Peavler, 2016). This could be done by pursuing more of an immediate reason that will realize the shareholders wealth maximization goal. However, this main reason may fail to be realized as most mergers depict negative results.
Moore, P. (n.d.) Target to add PFresh grocery concept at 350 stores. Business News – The Business Journals. Retrieved March 13, 2012, from http://www.bizjournals.com/twincities/stories/2009/11/16/daily32.html
When two companies decide to combine forces and become one bigger, richer mega company, it is called merging. This process forms a new company, combining the money and ideas of what used to be two different entities into one. This, however, is not the only thing that results from merging two different companies, and since we will be discussing the merging of two companies in the pharmaceutical industry, the impact will be incredible. Of course, the merging of two companies will not only have positive impacts but it will have many negative side effects as well. Furthermore, depending on the size of the merging companies and the goals of the people leading these companies there will always be contradictions according to the long-term goals or short-term goals depending on what both parties’ interests are. Our company, Verduga Inc. is contemplating to merge with Coronado-Salinas Inc., so before we rush into such a merger we must contemplate the positive and negative aspects of such a move. When it comes to mergers there are always many possible positive and negative impacts due to the effects of merging; these effects more widely impact the fields on research and development, on employment and management, stocks and shareholders, monopolization, and ingenuity.
Week 5 Lecture. (2006). FIN 325 Mergers, Acquisitions, and International Finance. Retrieved from rEsource on July 7th, 2006 from https://ecampus.phoenix.edu/secure/resource/resource.asp
Sanders, M. 2014. What Is a Company Merger?. [online] Available at: http://smallbusiness.chron.com/company-merger-21903.html [Accessed: 8 Mar 2014].
The first two do not require the acquired business unit to be connected with the existing units; the second two depend on connection. Although the concepts are not always mutually exclusive, the way in which they generate value for the corporation is different for each. The portfolio management balances current business activities with new industry acquisitions. Its success is undervalued acquisition meets attractiveness and COE test. The challenges are: increased capital market competition, need for industry specific knowledge, and growth of the company and diversity. The restructuring seeks underdeveloped or sick companies and industries. Its successes are: utilize and pass the three tests and ability to find undervalued companies with growth potential. Its challenges are: restructurer exposed to more risk, time limit for success, hold onto a restructured company, and growing depletion of restructuring pool with increased competition. The transfer of skills involves activities important to competitive advantage. With transferring skills, business activities are similar enough that sharing knowledge would be meaningful. However, skills must be useful to key business activities and must be beyond competitors’ capabilities. The ability to share activities has been a potent basis for corporate strategy because sharing often enhances
When entrepreneurs plan their business future they will consider how they can increase their business size or profit in a short period. Entrepreneurs may consider growing their business or company by using a merger or an acquisition. These methods can be a speed up tool and a short cut to enlarge their business. (Burns, 2011) Also they can reduce competition, make it easier for entrepreneurs to think about the market and product development and risk reduction. Furthermore, some lesser – known companies can improve their firm’s image and market power by using merger and acquisition with larger firms. However, there may be risks associated with merger and acquisition related to lack of finance and time. (Burns, 2011) This essay will discuss more deeply the advantages and disadvantages of using mergers and acquisitions, showing how it can affect firms and market with the case study.