Mergers and acquisitions

By Xin ZHANG Student in Master 2 Bank and

Finance

AGENDA

M&A DEFINITIONS1

COMPARISON OF M&A2

CONSEQUENCES3

Corporate Restructure

Why restructure?

Because changing management can enhance firm’s value.

Major forms:Expansion: combining assets through M&AContraction: Breaking-up assets through divestitures

Other forms:Changing ownership structure (LBO leverage buyout)Retaining control through defensive strategies (poison pills etc.)

Forms of corporate restructure

Number & Value of M&A Worldwide

https://imaa-institute.org/statistics-mergers-acquisitions/

MERGER

DEFINITION

TYPES

MERGER

A transaction where two firms agree to integrate their operations on a

relatively co-equal basis.

The bidder= acquiring company

The target company = the firm that is potentially acquired

A merger happens when two firms of about the same size agree to go

forward as a single new company rather than remain separately owned

and operated.

MERGER

It’s ratified by the respective boards and approved by the majority –

usually 2/3 of shareholders from both firm.

They might change name, name may be one of the parent’s or a

combination (e.g. from “Daimler – Benz& Chrysler” to “Daimler-Chrysler”).

One of the parents usually emerges as the dominant management.

Horizontal merger

between companies producing similar products, goods and offerings similar services in different markets

01

Vertical merger

between two companies producing different but related goods and services in the same market

02

Conglomerate merger

between firms that are involved in totally interrelated business activity

03

DIFFERENT TYPES OF MERGER

JPMorgan Chase, its current structure, is the result of the combination of several large U.S. banking companies over the last decade including Chase Manhattan Bank, J.P. Morgan & Co., Bank One, Bear Stearns and Washington Mutual.

ACQUISITION

DEFINITION

TYPES

Acquisition

A transaction where one firm buys another one by making the acquired firm a subsidiary within its portfolio of business.

In other terms, acquisition is also called takeover or buyout.In acquisition two companies are combined together to form a new one.

DIFFERENT TYPES

Acquisitions are divided into” private” and “public”

Its depends on whether the acquire or target company is or is not listed

on public stock market.

PRIVATE PUBLIC

In 2006, Disney exchanged 2.3 shares of its common stock for each share of Pixar common stock, resulting in the issuance of 279 million shares of Disney.The acquisition purchase price was $7.4 billion in an all-stock deal. ($6,4 billion of stock and Pizar's cash and investments of $1,0 billion)

DIFFERENT TYPES

1 FRIENDLY TAKEOVER

2 HOSTILE TAKEOVER

A friendly takeover involves an acquisition through negotiations between the existing promoters and prospective investors. This kind of takeover is resorted to further common objectives of both the parties;

A hostile takeover can happen by way of any of the following actions: if the board rejects the offer, but the bidder continues to pursue it or the bidder makes the offer without informing the board beforehand.

TAKEOVER AND DEFENSES

The company being bid can use a number of defensive tactics including:

1. Persuasion by management that the offer isn’t in their best interests

2. Taking legal actions3. Increasing the cash dividend4. As a last resort, looking for a “friendly”

company (e.g. White Knight) to purchase them.

APPLE & BEATSApple's $3 billion purchase of Beats in may 2014

This acquisition made Beats co-founder Dr Dre the first hip-hop billionaire.

In February 2014 Facebook announced the firm's biggest acquisition ever. In October 2014, Facebook finally closes $19 Billion WhatsApp Deal.

This acquisition was the sixth biggest in technologies and biggest ever in history of acquisitions of software companies.

FACEBOOK & WHATSAPP

2. COMPARISON

company A+ company B= Company C

company A + company B= Company A

The words are often used interchangeably even though they mean something very different, but “merger” sounds more amicable and less threatening.

MERGER ACQUISITIONS

1. Merging of two organization in to one. It's the mutual decision

2. Merger is more expensive than acquisition (high legal cost)

3. It's time consuming and the company has to maintain so much legal issues

4. Through merger shareholders can increase their net worth

5. Dilution of ownership occurs in merger

1. It can be friendly takeover or hostile takeover

2. Less expensive than merger

3. It's faster and easier transaction

4. Buyers cannot raise their enough capital

5. The acquirer does not experience the dilution of ownership

3. CONSEQUENCES

IMPACT OF M&A

VALUE CREATION FOR M&A’s

Revenue enhancement Marketing gains Strategic benefits

Operating synergies Economies of scale (spreading cost across more

units) Economies of scope (reduce costs for supplier and

customers) Complementary strengths

Efficiency increases New management team might be more efficient Make use of unused production/ sales/ marketing

channel capacity

Tax benefits The use of unused debt capacity The use of surplus funds

1

5

4

Overly diversified

Inability to achieve synergy

Large extraordinary debts

3

2

Cultures differences

Inadequate evolution of target

problems

M&A implementation issues

Daimler Chrysler Merger A cultural Mismatch

Daimler-Benz and Chrysler Corporation, two of the world’s leading car manufacturers, agreed to combine their businesses in 1998.

Chrysler reported a third quarter loss of $ 512 million for the period ending September 30, 2000.

Its share value slipped below 40 form 108 in January 1999

70% of all mergers and acquisitions that take place between firms form different countries turns out to be a failure.

M&A activity is risky, it has both positive and negative impacts. When an company acquire or merge, it depends on its strategies whether they will profit or loss

CONCLUSION

THANKS

Xin ZHANG