MADRAS SCHOOL OF SOCIAL WORK (Autonomous) (Affiliated to the University of Madras) 32, Casa Major Road, Egmore, Chennai- 08 STRATEGIC
HUMAN RESOURCE MANAGEMENT AN ASSIGNMENT ON
MERGERS AND ACQUISITIONS
-Global and Indian perspective
Done by: R. Dhilip Kumar Professor in-charge: Dr. V.A.Vijayaraghavan Class: II MSE (Aided) Regn No: 09 /MSWH/ 26 Date of submission: 09/ 04/ 2011 Signature:
MERGERS & ACQUISITIONS -GLOBAL AND INDIAN PERSPECTIVES Introduction: 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. Not surprisingly, these actions often make the news. Deals can be worth hundreds of millions, or even billions, of dollars. They 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. And it is no wonder we hear about so many of these transactions; they happen all the time. Sure, M&A deals grab headlines, but what does this all mean to investors? To answer this question, this tutorial discusses the forces that drive companies to buy or merge with others, or to split-off or sell parts of their own businesses. Once you know the different ways in which these deals are executed, you'll have a better idea of whether you should cheer or weep when a company you own buys another company - or is bought by one. You will also be aware of the tax consequences for companies and for investors. Synopsis:
1. Definition 2. Main idea 3. Synergy 4. Types 5. Acquisitions 6. Cost involved in M & a 7. Impact of M & A 8. M & A in India 9. Preventing failures in M & A 10. Conclusion & references
The Main Idea: One plus one makes three: this equation is the special alchemy of a merger or an acquisition. selling and combining of different companies that can aid.at least. Consider all the money saved from reducing the number of staff members from accounting. Job cuts will also include the former CEO. cost-efficient company.Definition: The phrase mergers and acquisitions (abbreviated M&A) is defined as aspect of corporate strategy. mergers tend to mean job losses. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Synergy takes the form of revenue enhancement and cost savings.
. Strong companies will act to buy other companies to create a more competitive. This rationale is particularly alluring to companies when times are tough. Whether it's purchasing stationery or a new corporate IT system. companies need to stay on top of technological developments and their business applications.To stay competitive.As every employee knows. who typically leaves with a compensation package. Synergy:
Synergy is the magic force that allows for enhanced cost efficiencies of the new business. size matters. or help a growing company in a given industry grow rapidly without having to create another business entity. companies have a greater ability to negotiate prices with their suppliers. Economies of scale . Because of these potential benefits. marketing and other departments. finance.Yes. corporate finance and management dealing with the buying. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. By merging. a bigger company placing the orders can save more on costs. a large company can maintain or develop a competitive edge. the companies hope to benefit from the following:
Staff reductions . Mergers also translate into improved purchasing power to buy equipment or office supplies . that's the reasoning behind M&A. Two companies together are more valuable than two separate companies . By buying a smaller company with unique technologies. target companies will often agree to be purchased when they know they cannot survive alone. Acquiring new technology .when placing larger orders.
distinguished by the relationship between the two companies that are merging:
Horizontal merger .Two companies that are in direct competition and share the same product lines and markets. Product-extension merger . synergy opportunities may exist only in the minds of the corporate leaders and the deal makers. A merge may expand two companies' marketing and distribution. one and one add up to less than two. Vertical merger .A customer and company or a supplier and company. We'll talk more about why M&A may fail in a later section of this tutorial.Two companies that sell the same products in different markets. Think of a cone supplier merging with an ice cream maker. Where there is no value to be created. the CEO and investment bankers who have much to gain from a successful M&A deal . Conglomeration . eventually sees through this and penalizes the company by assigning it a discounted share price. Types of Mergers:
From the perspective of business structures.Two companies that have no common business areas.
Improved market reach and industry visibility . there ought to be economies of scale when two businesses are combined. Sadly. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones. Sure. achieving synergy is easier said than done . Here are a few types. The market.will try to create an image of enhanced value. but sometimes a merger does just the opposite. giving them new sales opportunities. Market-extension merger .it is not automatically realized once two companies merge. however. In many cases.Companies buy companies to reach new markets and grow revenues and earnings.Two companies selling different but related products in the same market. there is a whole host of different mergers.
which means that Company Y will have only cash (and debt. reducing taxes payable by the acquiring company. as in some of the merger deals we discuss above. Like mergers. Consolidation Mergers . The purchase is made with cash or through the issue of some kind of debt instrument. efficiencies and enhanced market visibility. In fact. Company Y becomes merely a shell and will eventually liquidate or enter another area of business.As the name suggests.With this merger.
As you can see. a brand new company is formed and both companies are bought and combined under the new entity. stock or a combination of the two. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly-listed shell company. We will discuss this further in part four of this tutorial. acquisitions are more hostile. Another type of acquisition is a reverse merger. Other times. Acquisitions are often congenial. which is common in smaller deals. acquisitions are actions through which companies seek economies of scale. Acquiring companies often prefer this type of merger because it can provide them with a tax benefit. Acquired assets can be written-up to the actual purchase price. Another possibility. Company X buys all of Company Y's assets for cash. is for one company to acquire all the assets of another company. and the difference between the book value and the purchase price of the assets can depreciate annually. the sale is taxable. The tax terms are the same as those of a purchase merger. Unlike all mergers. a company can buy another company with cash. a deal that enables a private company to get publicly-listed in a relatively short time period. all acquisitions involve one firm purchasing another . it may be different in name only. and all parties feel satisfied with the deal.
.There are two types of mergers that are distinguished by how the merger is financed.there is no exchange of stock or consolidation as a new company. The private company reverse merges into the public company. In an acquisition. Of course. usually one with no business and limited assets. this kind of merger occurs when one company purchases another. Each has certain implications for the companies involved and for investors:
Purchase Mergers . if they had debt before). an acquisition may be only slightly different from a merger. and together they become an entirely new public corporation with tradable shares.
Seller agrees on the disseminated materials in advance.
. which factually showcases the business.
Structured Marketing Process
This is merger and acquisition process involves marketing of the business entity. future earnings share. convertible bonds. facilities and ownerships are reviewed. Serious buyers are also identified and then encouraged during the process.Process of Mergers and Acquisitions:
The process of merger and acquisition has the following steps: Market Valuation
Before you go for any merger and acquisition. Seller also presents Memorandum and Profiles. products/services. The structure of the deal largely depends upon the available options. its history. Sales organization and marketing approaches are also taken into consideration. Following are the features of this phase. selling price is never divulged to the potential buyers. it is of utmost important that you must know the present market value of the organization as well as its estimated future financial performance. While doing the marketing. The information about organization. Assessment and screening of buyers are done. stock. continuing business involvement. The form of compensation (such as cash. or buy back opportunities etc. debt resolution etc. consulting agreements. Buyer also needs to sign a Non-Disclosure agreement. Exit Planning
The decision to sell business largely depends upon the future plan of the organization – what does it target to achieve and how is it going to handle the wealth etc. Database of prospective buyers are searched. secured notes. as well as tax issues and business issues are considered before making exit planning. royalties. Various issues like estate planning.) also plays a major role here in determining the exit planning.
After reviewing. you firstly need to find out the way to accelerate your strategic business plan through the M&A. representations and warranties. financing sources and other conditions of sale
Strategic Process of Mergers and Acquisition: The merger and acquisition strategies may differ from company to company and also depend a lot on the policy of the respective organization. earn out provisions liability obligations. based on which. tad advisors etc. in merger and acquisition strategies. Buyer Due Diligence
This is the phase in the merger and acquisition process where seller makes its business process open for the buyer. deciding on due diligence period. purchase price adjustments. Non-solicitation agreement. Determine Business Plan Drivers Merger and acquisition strategies are deduced from the strategic business plan of the organization. product liability issues. Issues like price and terms. Definitive Purchase Agreement
Finally Definitive Purchase Agreement are made. a Definitive Purchase Agreement is prepared. are negotiated in the Letter of Intent.
. so that it can make an in-depth investigation on the business as well as its attorneys. deal structure. bankers. Breakup fees and no shop provisions.
Letter of Intent
Both. buyer and seller take the letter of intent to their respective attorneys to find out whether there is any scope of further negotiation left or not. pre closing tax liabilities. So. merger and acquisition strategies have got some distinct process. and indemnification issues etc. Final letter of intent is developed after a phase of negotiation. ISRA and ERISA issues.
Special focuses are given on he personal needs of the seller during structuring of deals. the strategies are devised. However. post closing insurance policies. accountants. which states the transaction details including regulatory approvals.
Review and Approve the Strategy this is the time to review and approve your merger and acquisition strategies. and the risk amount etc. and even recommendations from your employees. public and private equities. referrals from board members. investors and attorneys. the geographic locations where you would operate your business in. the amount of new equity and new debt that your organization can raise etc. Funds for acquisitions may come through various ways like cash. Determine Acquisition Financing Constraints Now. PIPEs. public stock research. Build Preliminary Valuation Models this stage is to calculate the initial estimated acquisition cost. You can identify those by market research. you need to find out if there are any financial constraints for supporting the acquisition. or untapped equity. you can go ahead with the merger or acquisition. If everyone gives their nods on the strategies. the products and technologies that you would require. earn outs etc. You need to consider a few facts like the availability of untapped credit facilities.
. Rate/Rank Acquisition Candidates Rate or rank the acquisition candidates according to their impact on business and feasibility of closing the deal. the estimated returns etc. You need to find out whether all the critical stakeholders like board members. Develop Acquisition Candidate List now you have to identify the specific companies (private and public) that you are eyeing for acquisition.While chalking out strategies. the skills and resources that you would require. This process will help you in understanding the relative impacts of the acquisitions. investment bankers. Many organizations have their own formats for presenting preliminary valuation. the financial targets. you need to consider the points like the markets of your intended business. agree with it or not. surplus cash. minority investments. You also need to calculate the amount of returns that you must achieve. the market share that you are eyeing for in each market. debt. You also need to develop summary profile for every company. investors etc.
Here. they decide whether they should go with the deal or not. cost of replacing the target company is calculated and acquisitions are based on that. Here the value of all the equipments and staffing costs are taken into consideration. DCF method is one of the strongest methods of valuation. both the companies calculate the costs of mergers and acquisitions to find out the viability and profitability of the deal. In mergers and acquisitions. Some of those can be listed as: Replacement Cost Method In Replacement Cost Method. Estimated Cash Flow = Net Income + Depreciation/Amortization . It calculates the current value of the organization according to the estimated future cash flows. Discounted Cash Flow (DCF) Method Discounted Cash Flow (DCF) method is one of the major valuation tools in mergers and acquisitions. both the companies may have different theories about the worth of the target company. Before going for any merger or acquisition. The seller tries to project the value of the company high. whereas buyer will try to seal the deal at a lower price.Capital Expenditures Change in Working Capital These estimated cash flows are discounted to a present value.
.Costs involved in M & A: Costs of mergers and acquisitions are an important and integral part of mergers and acquisitions process. Based on the calculation. There are a number of legitimate methods for valuation of companies. organization's Weighted Average Costs of Capital (WACC) is used for the calculation. Replacement cost method isn't applicable to service industry. where key assets (people and ideas) are hard to value. Valuation in M & A
There are a number of methods used in mergers and acquisition valuations. The acquiring company offers to buy all these from the target company at the given cost.
it doesn't need the same amount of employees that it previously had to do the same amount of business.Economic Profit Model In this model. If the merged company is pretty sufficient in terms of business capabilities. Due to the changes in the operating environment and business procedures. mergers and acquisitions could be pretty difficult for the employees as there could always be the possibility of layoffs after any merger or acquisition. Economic Profit = Invested Capital x (Return on Invested Capital .(Invested Capital x Weighted Average Cost of Capital) Value = Invested Capital + Current Value of Estimated Economic Profit Price-Earnings Ratios (P/E Ratio) This is one of the comparative methods adopted by the acquiring companies. Besides. based on which they put forward their offers. It also keeps a tab on the price-tosales ratio of other companies.
Impact of M & A: Impacts on Employees
Mergers and acquisitions may have great economic impact on the employees of the organization. the value of the organization is calculated by summing up the amount of capital invested and a premium equal to the current value of the value created every year moving forward. Here. acquiring company offers multiple of the target company's earnings. acquiring company offers multiple of the revenues. layoffs are quite inevitable. employees may also suffer from emotional and physical problems. Enterprise-Value-to-Sales Ratio (EV/Sales) Here.Weighted Average Cost of Capital) Economic Profit = Net Operating Profit Less Adjusted Taxes . As a result.
. those who are working would also see some changes in the corporate culture. In fact.
Due to change in corporate culture of the organization. on behalf of their superiors. both Daimler-Benz and Chrysler ceased to exist when the two firms merged. From a legal point of view. On the other hand.Impact on Management
The percentage of job loss may be higher in the management level than the general employees. For example. If it is a purchase. The reason behind this is the corporate culture clash. change of powers can also be observed among the market players. On the other hand. the buyer "swallows" the business and the buyer's stock continues to be traded. many managerial level professionals. need to implement the corporate policies that they might not agree with. DaimlerChrysler. was created. a merger happens when two firms. For example. Impact on Competition
Mergers and acquisitions have different impact as far as market competitions are concerned. the shareholders of the acquired company get highly benefited from the acquisition as the acquiring company pays a hefty amount for the acquisition. It involves high level of stress." Both companies' stocks are surrendered and new company stock is issued in its place. Impact on Shareholders
Impact of mergers and acquisitions also include some economic impact on the shareholders. and a new company. Different industry has different level of competitions after the mergers and acquisitions. often of about the same size. the competition in the financial services industry is relatively constant. the target company ceases to exist. agree to go forward as a single new company rather than remain separately owned and operated. the terms merger and acquisition mean slightly different things. the purchase is called an acquisition.
Distinction between Mergers and Acquisitions:
Although they are often uttered in the same breath and used as though they were synonymous. When one company takes over another and clearly established itself as the new owner. This kind of action is more precisely referred to as a "merger of equals.
. In the pure sense of the term. the shareholders of the acquiring company suffer some losses after the acquisition due to the acquisition premium and augmented debt load.
In other words. The buyer company “swallows” the business of the target company. 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. But when the agreement is hostile. even if it's technically an acquisition.
Merger The case when two companies (often of same size) decide to move forward as a single new company instead of operating business separately. Reddy's Labs acquired Betapharm through an agreement amounting $597 million. one company will buy another and. as part of the deal's terms. known as Glaxo SmithKline. But when the deal is unfriendly . Dr.
. however. which ceases to exist. Being bought out often carries negative connotations. while new stocks are issued afresh. employees and shareholders. however. there are certain differences between mergers and acquisitions. Though the two words mergers and acquisitions are often spoken in the same breath and are also used in such a way as if they are synonymous. Usually. by describing the deal as a merger.
A buyout agreement can also be known as a merger when both owners mutually decide to combine their business in the best interest of their firms. Glaxo Wellcome and SmithKline Beehcam ceased to exist and merged to become a new company.that is. the real difference lies in how the purchase is communicated to and received by the target company's board of directors.
The stocks of both the companies are surrendered. or when the target firm is unwilling to be bought. it is considered as an acquisition. simply allow the acquired firm to proclaim that the action is a merger of equals.it is always regarded as an acquisition.
Acquisition The case when one company takes over another and establishes itself as the new owner of the business. deal makers and top managers try to make the takeover more palatable. Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. therefore.In practice. when the target company does not want to be purchased . actual mergers of equals don't happen very often.
It was an all cash deal which cumulatively amounted to $12.
. 2007. steel. Indian telecom major Bharti Airtel is all set to merge with its South African counterpart MTN.
Why Mergers and Acquisitions in India:
The factors responsible for making the merger and acquisition deals favorable in India are:
• • • •
Dynamic government policies Corporate investments in industry Economic stability “ready to experiment” attitude of Indian industrialists
Sectors like pharmaceuticals. 2007.
Vodafone purchased administering interest of 67% owned by Hutch-Essar for a total worth of $11. In spite of the massive downturn in 2009. etc. IT. ITES. Indian industries were exposed to plethora of challenges both nationally and internationally. making it a vital premeditated option. with a deal worth USD 23 billion. construction.Mergers and Acquisitions in India: The practice of mergers and acquisitions has attained considerable significance in the contemporary corporate scenario which is broadly used for reorganizing the business entities. telecommunications.2 billion. have proved their worth in the international scenario and the rising participation of Indian firms in signing M&A deals has further triggered the acquisition activities in India. The cut-throat competition in international market compelled the Indian firms to opt for mergers and acquisitions strategies. since the introduction of Indian economic reform in 1991. According to the agreement Bharti Airtel would obtain 49% of
Ten Biggest M & A deals in India: Tata Steel acquired 100% stake in Corus Group on January 30.1 billion on February 11. the future of M&A deals in India looks promising.
India Aluminium and copper giant Hindalco Industries purchased Canada-based firm Novelis Inc in February 2007.7 billion. The approval of the High Court is highly desirable for the commencement of any such process and the proposal for any merger or acquisition should be sanctioned by a 3/4th of the shareholders or creditors present at the General Board Meetings of the concerned firm.8 billion making it ninth biggest-ever M&A agreement involving an Indian company. 1956. the M&A deal amounted to $1. The deal amounted to $2. The total worth of the deal was $6-billion. The deal took place in February 2008 for $2.4 billion. Although mergers and acquisitions may be instigated through mutual agreements between the two firms.
In May 2007.HDFC Bank and Centurion Bank of Punjab. According to the law.
.7 billion.8% of London based companies' shareholders acknowledged the buyout proposal.
Laws governing M & A in India: Mergers and Acquisitions in India are governed by the Indian Companies Act. The deal amounted to $2.5 billion.
India's financial industry saw the merging of two prominent banks . under Sections 391 to 394.
Indian antagonism law permits the utmost time period of 210 days for the companies for going ahead with the process of merger or acquisition.
2009 saw the acquisition Asarco LLC by Sterlite Industries Ltd's for $1. The 10th largest in India.
Tata Motors acquired Jaguar and Land Rover brands from Ford Motor in March 2008. the obligatory time frame for claimants can either be 210 days commencing from the filing of the notice or acknowledgment of the Commission's order. the procedure remains chiefly court driven.
Indian pharma industry registered its first biggest in 2008 M&A deal through the acquisition of Japanese pharmaceutical company Daiichi Sankyo by Indian major Ranbaxy for $4. the Japan based telecom firm acquired 26% stake in Tata Teleservices for USD 2.
The Oil and Natural Gas Corp purchased Imperial Energy Plc in January 2009. Suzlon Energy obtained the Germany-based wind turbine producer Repower.
In November 2008 NTT DoCoMo. The allotted time period is clearly different from the minimum obligatory stay period for claimants.8 billion and was considered as one of the biggest takeovers after 96.3 billion.
To qualify the allocation. the international earnings by an Indian firm would fall under the category of 'scope of income' for the Indian firm.
Provisions under M & A laws in India: Provision for tax allowances for mergers or de-mergers between two business identities is allocated under the Indian Income tax Act. providing the cross-border firm has its set up in India. Voluntary announcement systems are often correlated with business ambiguities and if the companies are identified for practicing monopoly after merging.
As per the clauses mentioned under section 5(1) of the Indian Income Tax Act.
The Indian M&A laws also permit the combination of any Indian firm with its international counterparts. Out of 106 nations which have formulated competition laws. either Indian or foreign. Hence the share allocation in the targeted foreign business identity would be acknowledged as a transfer and would be chargeable under the Indian tax law. 2002. the firm. a different set of guidelines are allotted. The entry limits are allocated in context of asset worth or in context of the company's annual incomes. qualifies for certain tax exemptions from the capital profits during the transfers of shares. only 9 are acclaimed with a voluntary announcement system. There have been recent modifications in the Competition Act.
Under the “Indian I-T tax Act”. the law strictly order them opt for de-merging of the business identity. It has replaced the voluntary announcement system with a mandatory one. these mergers or de-mergers are required to full the requirements related to section 2(19AA) and section 2(1B) of the Indian Income Tax Act as per the pertinent state of affairs. a situation where two foreign firms are merged and the new formed identity is owned by an Indian firm.
In case of “foreign company mergers”.The entry limits for companies merging under the Indian law are considerably high. The entry limits in India are higher than the European Union and are twofold as compared to the United Kingdom.
Greenmail – Greenmail refers to the state of affairs where the target firm buys back its own assets or shares from the bidding firm at a greater cost.
Black Knight – The term generally refers to the firm which takes over the target firm in a hostile manner. During this process a fraction of the firm may break up and establish itself as a new business identity. A company can prevent itself by issuing bonds that can be exchanged at a higher price.Important terminology related to M & A: Asset Stripping – Asset Stripping is the process in which a firm takes over another firm and sells its asset in fractions in order to come up with a cost that would match the total takeover expenditure.
Carve .out – The procedure of trading a small part of the firm as an Initial Public Offering is known as carve-out.
Poison Pill or Suicide Pill Defense – Poison Pill is an approach which is adopted by the target firm to present itself as less likable for an unfriendly subjugation.
Demerger or Spin off – Demerger refers to the practice of corporate reorganization.
Grey Knight – A firm that acquires another under ambiguous conditions or without any comprehensible intentions is known as a grey knight. The shareholders have full privilege to exchange their bonds at a premium if the buyout takes place.
Macaroni Defense – Macaroni Defense is an approach that is implemented by the firms to protect them from any hostile subjugation.
Management Buy In – This term refers to the process where a firm buys and invests in another and employs their managers and officials to administer the new established business identity.
Dawn Raid – The process of purchasing shares of the target firm anticipating the decline in market costs till the completion of the takeover is known as Dawn Raid. The disagreements between the chief executives of the target firm may not be long-lasting and the hostile subjugation may take up the form of friendly
Hostile Takeover – Unfriendly or Hostile acquisitions takes place when the management of the target firm does not have any prior knowledge about it or does not mutually agree for the proposal.
It often becomes very tough to integrate the cultures of two different companies. which in turn ensure the downturn of the organization. buyer and seller need to do proper research and analysis before going for mergers and acquisitions. In all these cases. However. Companies often go for mergers and acquisitions getting influenced by the booming stock market. it needs to consider a lot.
. Michael Porter found that around 50% to 60% of the mergers and acquisitions ended in a failure. organizations also go for mergers just to imitate others. In 2004. McKinsey also found that only 23% acquisitions ended in a positive note on investment. Cultural Difference One of the major reasons behind the failure of mergers and acquisitions is the cultural difference between the organizations. Before an organization can go for mergers and acquisitions. Flawed Intention Flawed intentions often become the main reason behind the failure of mergers and acquisitions. Both the parties. Following could be the reasons behind the failure of mergers and acquisitions. lawyers and other advisers who earn hefty fees from the clients. viz. Top executives often tend to go for mergers under the influence of bankers. Management Buy Out – A management buy out refers to the process in which the management buys a firm in collaboration with its undertaking entrepreneurs. There are several explanations for failure of mergers and acquisitions. the majority of the mergers and acquisitions cannot create a value and fail miserably. Sometimes. Why M & A fail? There could be several reasons behind the failure of mergers and acquisitions. But before going for merger and acquisition. Let's find out why majority of the mergers and acquisitions fail. the outcome can be too encouraging. Many company look mergers and acquisitions as the solution to their problems.
Failures in M & A: Despite the highest degree of strategy and planning and investments of hundreds of crores. This practice is prevalent among the British and American firms. In 1987. they do not introspect themselves. The mismatch of culture leads to deterring working environment. some of them are still against hostile subjugations.takeover. who often have been the competitors. the professor of Harvard. Often the ego of the executive can become the cause of unsuccessful merger.
the work gets hampered. By this way. Following are those: Continuous communication is of utmost necessary across all levels – employees. For others. How to prevent failure? Several initiatives can be undertaken in order to prevent the failure of mergers and acquisitions. At least in theory. expanding operations and cutting costs. Additional capital can fund growth organically or through acquisition.
Management need to identify the talents in both the organizations who may play major roles in the restructuring of the organization. de-merged companies often enjoy improved operating performance thanks to redesigned management incentives. separating the public ownership of a subsidiary or business segment offers more advantages. higher management professionals must be ready to greet a new or modified culture. Many companies find that the best way to get ahead is to expand ownership boundaries through mergers and acquisitions. Management must retain those talents. Meanwhile. stakeholders.
During the merger process. Investors can take comfort in the idea that a merger will deliver enhanced market power.
Conclusion: One size doesn't fit all. By contrast. The organization may end up in going for a merger. they can win the trust of the employees and others and maintain a healthy environment. They need to be very patient in hearing the concerns of other people and employees. The employees may also get emotionally confused in the new environment after the merger. investors benefit from the improved information flow from de-merged companies.
. mergers create synergies and economies of scale.Mergers can also happen due to generalized fear. The incidents like technological advancement or change in economic scenario can make an organization to go for a change. Hence. As a result. Due to mergers. suppliers and government leaders. customers. they often get diverted from their work and start neglecting their core business. managers often need to concentrate and invest time to the deal.
Managers have to be transparent and should always tell the truth.
An acquisition always involves the purchase of one company by another. http://www. Break up or de-merger strategies can provide companies with opportunities to raise additional equity funds unlock hidden shareholder value and sharpen management focus.investopedia. Summary:
A merger can happen when two companies decide to combine into one entity or when one company buys another. http://en.wikipedia. The most beneficial form of equity structure involves a complete analysis of the costs and benefits associated with the deals. De-mergers can occur by means of divestitures.M&A comes in all shapes and sizes. Mergers can fail for many reasons including a lack of management foresight.such as the P/E and P/S ratios .asp
2.replacement cost or discounted cash flow analysis. stock-forstock transaction or a combination of both. The functions of synergy allow for the enhanced cost efficiency of a new entity made from two smaller ones .synergy is the logic behind mergers and acquisitions. A transaction struck with stock is not taxable. An M&A deal can be executed by means of a cash transaction.
1. carve-outs spinoffs or tracking stocks. Acquiring companies use various methods to value their targets. the inability to overcome practical challenges and loss of revenue momentum from a neglect of dayto-day operations.com/university/mergers/default. Some of these methods are based on comparative ratios . and investors need to consider the complex issues involved in M&A.org/wiki/Mergers_and_acquisitions