Professional Documents
Culture Documents
1. Introduction:
The forces of globalization and technological change have created a highly
competitive and dynamic business world where mergers and acquisitions are
increasingly being used to seek competitive advantage and maximize value for
shareholders (Stanley Foster, et. all, 2007).
Corporate takeover activity, in other words which is the merger and acquisition
(M&A) activity that has increased mainly since the mid of-1960s (Dimovski &
Skerlavaj 2006). M&A has been, and likely always will be a main power in the
modern financial and economic society. Almost every person in society is indirectly
or directly affected by this activity, either by working for a firm that is involved in an
M&A transaction, or by purchasing goods or services from it (Conrath, Craig, et. all,
1999).
BP provides fuel for transportation, energy for heat and light, retail services, and
petrochemicals products. The company operates through two segments: Exploration
and Production, and Refining and Marketing. The Exploration and Production
segment engages in the oil and natural gas exploration, field development, and
production; and marketing and trading of natural gas, including liquefied natural
gas, and power and natural gas liquids (about BP at www.bp.com).
Main report:
2. Takeover
The term takeover, which is also known as an acquisition, is the process of buying of
one company (the 'target') by another company. A takeover in other sense is the
acquisition of control of another company. This is normally done by buying more
than 50 percent in shares of the company. An acquisition may be friendly or hostile
and depends upon how it is communicated to Target Company's management,
employees and shareholders and how it is received by them. If the firm being taken
over does not welcome the bid, the takeover then referred to as "hostile takeover"
and if the company seeks to resist the takeover, it is referred to as "contested
takeover" (John Fred W, 2004).
Firms who are subject to takeover could become target for a number of reasons:
They have the potential for growth but do not have the funds to exploit their
potential.
They have suffered some form of decline in fortunes but remain a widely known
name in the market.
They have suffered a decline in profits and shareholder value and are not in a
position to be able to fight off a takeover bid.
They are a firm in the process of growing and have reached a size whereby they are at
a critical stage in development. The next phase to their growth may be critical and
they may be reluctant to take such a massive step.
They may be seen as being a growing potential rival. (Bertoncelj and Kovac, 2007).
3. The process:
Takeover must not be considered as just an action, but it must be taken a process,
which is probably the most significant thing in an acquisition deal because it
influences the benefits and profitability of the acquisition (Sudarsanam, 2003). The
process is same for both merger and acquisition and can be divided into some steps
to ensure its profitability.
The fifth step is the making of purchase agreement in case of an acquisition deal and
the final agreement papers are generated in this stage.
which has a strong market presence, buys out the weak firm, then a more competitive
and cost efficient company can be generated. Here, the target company benefits as it
gets out of the difficult situation and after being acquired by the large firm, the joint
company accumulates larger market share. This is because of these benefits that the
small and less powerful firms agree to be acquired by the large firms.
5. Some Disadvantages:
The existing business may bring some inherited problems with it. For instance the
previous owner may have had trouble attracting customers, paying the lease, or
running new campaigns. One will have to deal with everything to set things right
before get to start moving forward.
5.1. Employees:
Impact of Mergers and Acquisitions on workers:
It is a well known fact that whenever there is a M&A, it will have some effects on the
employees or the workers. In the case when a new resulting company is quite
efficient in terms of business, it would require fewer numbers of people to perform
the same job. Under this situation, the acquiring company would attempt to scale
down the labour force. If the employees being laid off possess adequate knowledge
and skills, they may in fact benefit from this and move on for better opportunities.
(Eric Armour, 2002) But however, it is often seen that the employees who are laid off
would not have played a considerable role under the new organizational set up.
Consequently this leads to their removal from the new organizational set up. These
employees in turn would look for re employment and may have to be offered with a
much lesser pay package than the previous one. Though these circumstances may not
lead to drastic unemployment levels, however, the employees or workers will have to
compromise for the same. (A. C. Fernando, 2009).
5.3. Shareholders:
6. TAKEOVER of BP:
BP was Britain's largest company with a stock market value of 121bn before the oil
spill in the Gulf of Mexico. Since then more than 50bn of its share value has been
wiped off and a number of potential bidders are believed to be circling to take
advantage of its weakened state, of which the major companies are ExxonMobil,
PetroChina, and Shell (John Donovan, 2010).
Potentially, these companies have their abilities to takeover BP, but probably some of
them are unaware of the regulatory and political risk associated with BP (Nils
Prately, 2010). BP has reported a record loss of $17bn (11bn) over the damage
caused by oil spill, fines, and compensation, having set aside $32bn to cover the costs
of the spill.
According to an estimate by Fadel Gheit (managing director of oil and gas research),
company's stock has sunk about 40% since the oil spill in the Deepwater Horizon,
wiping out about $90 billion in market value. The company has already announced
that it will not pay dividends and that it has cut capital spending. On the other hand,
according to some industrial analyst, the company will probably have to sell off some
of its sprawling assets to raise cash to pay for the oil spill, while trimming some of its
less prized operations (John Donovan, 2010)).
BP's former chief executive, Tony Hayward, was well aware of the threat of a hostile
bid and had held several meetings with potential friendly investors including the
Kuwait Investment Office to make it harder for the likes of ExxonMobil or China's
National Offshore Oil Company (CNOOC) to win control in a hostile takeover bid.
The Kuwaitis already have a 1.75% stake, but BP would like it to increase that to as
much as 10%.
With all those threats BP stands at the centre of fresh takeover speculation. Oil
industry sources were quoted as saying that ExxonMobil had been given a green light
by the US government to "take a look" at BP and that the U.S. government will not
stand in its way if it chooses to attempt a takeover (James Moore, 2010).
7. Consequences of takeover
7.1. Creation of giant company
A merger between ExxonMobil is already the world's largest non-government owned
oil firm, and if they merge with BP, it would create a group value at $400bn, creating
a supergiant energy company that would control oil and gas fields around the planet.
It would cause political raptures in both the U.S. and Britain. Britons could well fight
hard to keep one of their flagship corporations from leaving the country (John
Donovan, 2010).
complex issues involved in M&A. The most beneficial form of equity structure
involves a complete analysis of the costs and benefits associated with the deals.
From the BP perspective, buying BP carries risks, despite all that, there have been
rumours in recent days that BP's biggest rivals are circling the company for a possible
takeover or merger, even as its public image is surely at one of the lowest points in its
102-year history. Both parties could have their own motives behind these kind of
deals. Buyers and sellers should understand their specific motivations and goals as
they pertain to the purchase under investigation. It is important that buyer and seller
understand the perspective of the other party involved in the negotiation.
The oil major companies are facing a barrage of criticism from environmental and
human rights campaigners, therefore there is need to change. And the change could
happened if the world made a determined attempt to invest more heavily in
renewable energy sources, but international initiatives take time.