You are on page 1of 14

TOPIC NAME

Mergers and Acquisitions


STUDENTS NAME : Vijaykumar Nishad 23 Ashwini Jagtap 13 Mahendra Jain 15 Aamir Kapoor 17 Nozer Khan 19

Ch7-1

The Strategic Management Process


External Analysis Strategic Choice

Mission

Objectives

Strategy Implementation

Competitive Advantage

Internal Analysis

Which Businesses to Enter? Corporate Level Strategy

Vertical Integration Diversification


Mode of Entry? Strategic Alliances Mergers & Acquisitions
Ch7-2

Mergers and Acquisitions


Merger
A transaction where two firms agree to integrate their operations on a relatively coequal basis because they have resources and capabilities that together may create a stronger competitive advantage

Acquisition
A transaction where one firm buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of businesses

Takeover
An acquisition where the target firm did not solicit the bid of the acquiring firm
Ch7-3

Mergers & Acquisitions Defined

Parent stocks are usually

Can be a controlling

retired and new stock issued


Name may be one of the

parents or a combination
One of the parents usually

Can be friendly or hostile

share, a majority, or all of the target firms stock

emerges as the dominant management

Usually done through

a tender offer
Ch7-4

Advantages of Mergers & Acquisitions


1- Merger is legally simple and does not cost much . 2- A merger does not require cash. 3- A merger allows the shareholders of smaller entities to own a smaller piece of a larger pie, increasing their overall net worth.

4- A merger allows the acquirer to avoid many of the costly and time-consuming aspects of asset purchases.
5- Reducing your costs , overheads and competition.
Ch7-5

Disadvantages of Mergers & Acquisitions


1- merger must be approved by a vote of the stockholders of each firm . 2-obtaining the necessary votes can be timeconsuming and difficult .

3- M&A activity is a relatively high risk of failure.


4- Diseconomies of scale if business becomes too large, which leads to higher unit costs.

Ch7-6

Types of Mergers
Horizontal merger - Two or more firms from the same field. Vertical merger - Integration of companies with supplementary relationship. Conglomerate merger - Unification of different kinds of businesses under one flagship company.

Ch7-7

Types of Acquisitions
Friendly - Management of both the companies agree mutually for takeover.

Hostile An aggressive firm tries to acquire the firm against the latters desire. Linked with poor management and performance. In cases where chances of making profits exceed the cost of takeover considerably. Promoters with less than 50% stake.
Ch7-8

Reasons for Acquisitions


Increased market power Overcome entry barriers Cost of new product development Increased speed to market Lower risk compared to developing new products Increased diversification Avoid excessive competition

Problems in Achieving Success


Integration difficulties Inadequate evaluation of target Large or extraordinary debt

Acquisitions

Inability to achieve synergy Too much diversification Managers overly focused on acquisitions Too large

Ch7-9

Reasons for Acquisitions


Increased Market Power
Acquisition intended to reduce the competitive balance of the industry Example: British Petroleums acquisition of U.S. Amoco

Overcome Barriers to Entry


Acquisitions overcome costly barriers to entry which may make start-ups economically unattractive Example: Belgian-Dutch Fortis acquisition of American Bankers Insurance Group

Lower Cost and Risk of New Product Development


Buying established businesses reduces risk of start-up ventures Example: Watson Pharmaceuticals acquisition of TheraTech Ch7-10

Reasons for Acquisitions


Increased Speed to Market
Closely related to Barriers to Entry, allows market entry in a more timely fashion Example: Kraft Foods acquisition of Boca Burger

Diversification
Quick way to move into businesses when firm currently lacks experience and depth in industry Example: CNETs acquisition of mySimon

Reshaping Competitive Scope


Firms may use acquisitions to restrict its dependence on a single or a few products or markets Example: General Electrics acquisition of NBC
Ch7-11

Problems with Acquisitions


Integration Difficulties
Differing financial and control systems can make integration of firms difficult Example: Intels acquisition of DECs semiconductor division

Inadequate Evaluation of Target


Winners Curse bid causes acquirer to overpay for firm Example: Marks and Spencers acquisition of Brooks Brothers

Large or Extraordinary Debt


Costly debt can create onerous burden on cash outflows Example: AgriBioTechs acquisition of dozens of small seed firms
Ch7-12

Problems with Acquisitions


Inability to Achieve Synergy
Justifying acquisitions can increase estimate of expected benefits Example: Quaker Oats and Snapple

Overly Diversified
Acquirer doesnt have expertise required to manage unrelated businesses Example: GE--prior to selling businesses and refocusing

Managers Overly Focused on Acquisitions


Managers may fail to objectively assess the value of outcomes achieved through the firms acquisition strategy Example: Ford and Jaguar

Too Large
Large bureaucracy reduces innovation and flexibility
Ch7-13

Ch7-14

You might also like