What is Mergers

The phrase mergers and acquisitions

(abbreviated M&A) refers to the aspect of
corporate strategy, corporate finance and
management dealing with the buying, selling
and combining of dfferent companies that can
aid, finance, or help a growing company in a
given industry grow rapidly without having to
create another business entity.
 TYPE OF MERGERS
● Horizontal Mergers
● Vertical Mergers
● Conglomerate Mergers
● Concentric Mergers
1. Horizontal Merger
 Combination of two or more firms operating in the
same stage of production.
2. Vertical Merger
 Combination of two firms that operate in different
stages of production.
- Textiles firm merges raw materials firm.
3. Conglomerate Mergers
 Merger of firms in unrelated lines of business that are
neither competitors nor potential or actual customers
or suppliers of each other.
 Buying and selling ability to manage
Example: General Electric buying NBC television
4. Concentric Mergers
Merger of two firms that are so related that there is a
carryover of specific management functions (research,
manufacturing, finance, marketing, etc.)
Example: Citigroup (principally a bank) buying Salomon Smith
Barney (an investment banker/stock brokerage operation)
 WHAT IS ACQUISITIONS ?
An acquisition, also known as a takeover or a buyout,
is the buying of one company (the ‘target’) by another.
An acquisition may be friendly or hostile. In the former
case, the companies cooperate in negotiations; in the
latter case, the takeover target is unwilling to be bought
or the target's board has no prior knowledge of the offer.
Acquisition usually refers to a purchase of a smaller firm
by a larger one.
contd..
Sometimes, however, a smaller firm will acquire
management control of a larger or longer
established company and keep its name for the
combined entity. This is known as a reverse take
over. Another type of acquisition is reverse merger,
a deal that enables a private company to get
publicly listed in a short time period. A reverse
merger occurs when a private company that has
strong prospects and is eager to raise financing
buys a publicly listed shell company, usually one
with no business and limited assets.
 Reasons for Acquisitions
Increased market power
Learning and Developing new capabilities
Overcoming entry barriers
Cost of new product development
Increase speed to market
Lower risk than developing new products
 Difference Between M & A
Merger
 The case when two companies
(often of same size) decide to move
forward as a single new company
instead of operating business
separately.
 he stocks of both the companies are
surrendered, while new stocks are
issued afresh.
 For example, Glaxo Wellcome and
SmithKline Beehcam ceased to
exist and merged to become a new
company, known as Glaxo
SmithKline.
Acquisition
 The case when one company
takes over another and
establishes itself as the new
owner of the business.
 The buyer company “swallows”
the business of the target
company, which ceases to exist.
 Dr. Reddy's Labs acquired
Betapharm through an
agreement amounting $597
million.
Impact of mergers & acquisitions

On workers or employees

On top level management:
On shareholders:
Motives behind M&A

Economy of scale:
Economy of scope:
Cross-selling:
Synergy:
Taxation:
 Costs of Merger & Acquisitions
Proper valuation of the target company
Replacement Costs
Discounted Cash Flow Method
Comparative Ratio calculation Method
 Benefits of Mergers & Acquisitions
Greater Value Generation
tax gains
Market
Gaining Cost Efficienc
Employee Benefits under Mergers and
Acquisitions
Mergers and Acquisitions Laws

Indian antagonism
The entry limits for companies
Provisions