Corporate Alliances and Acquisitions

Strategic alliances enable companies to share

resources. This creates synergies or advantages
and leads to increased market share and
greater competitiveness. Public companies hope to
increase shareholder value when they form
alliances. There are many kinds of corporate
alliances. Corporate partnerships or joint
ventures are formed when two or more companies
decide to cooperate on one particular projector
mission. When companies join together it is called
a merger. When one company makes a
successful takeover bid to buy another one, it is
referred to as an acquisition.
Reading 1: Mergers and Acquisitions

One plus one makes three: this equation is the main idea of
a merger or acquisition. The key principle behind buying a
company is to create shareholder value over and above that of
the sum of the two companies. Strong companies will act to buy
other companies to create a more competitive, cost-efficient
company. The companies will come together hoping to gain a
greater market share or to achieve greater efficiency. Because of
these potential benefits, target companies will often agree to be
purchased when they know they cannot survive alone.
Distinction between Mergers and Acquisitions

Although they are often uttered in the same breath and used as though they were
synonymous, the terms merger and acquisition mean slightly different things.
When one company takes over another and
clearly established itself as the new owner, the
purchase is called an acquisition. From a legal
point of view, the target company ceases to
exist, the buyer "swallows" the business and
the buyer's stock continues to be traded.
In the pure sense of the term, a merger happens when two firms, often of about the
same size, agree to go forward as a single new company rather than remain separately
owned and operated. This kind of action is more precisely referred to as a "merger of
equals." Both companies' stocks are surrendered and new company stock is issued in
its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two
firms merged, and a new company, DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often. Usually, one
company will buy another and, as part of the deal's terms, simply allow the acquired firm
to proclaim that the action is a merger of equals, even if it's technically an acquisition.
Being bought out often carries negative connotations, therefore, by describing the deal
as a merger, deal makers and top managers try to make the takeover more palatable.

A purchase deal will also be called a merger when both CEO’s agree that joining
together is in the best interest of both of their companies. But when the deal is
unfriendly - that is, when the target company does not want to be purchased - it is
always regarded as an acquisition.

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. In other words, the
real difference lies in how the purchase is communicated to and received by the target
company's board of directors, employees and shareholders.

Synergy

Synergy is the magic force that allows for enhanced cost efficiencies of the new
business. Synergy takes the form of revenue enhancement and cost savings. By
merging, the companies hope to benefit from the following: 

 Staff reductions. As every employee knows, mergers tend to mean job losses.
Consider all the money saved from reducing the number of staff members from
accounting, marketing and other departments. Job cuts will also include the
former CEO, who typically leaves with a compensation package. 
  Economies of scale. Size matters. Whether it's purchasing stationery or a new
corporate IT system, a bigger company placing the orders can save more on
costs. Mergers also translate into improved purchasing power to buy equipment
or office supplies - when placing larger orders, companies have a greater ability
to negotiate prices with their suppliers. 
 Acquiring new technology. To stay competitive, companies need to stay on top of
technological developments and their business applications. By buying a smaller
company with unique technologies, a large company can maintain or develop a
competitive edge. 
 Improved market reach and industry visibility. Companies buy companies to
reach new markets and grow revenues and earnings. A merge may expand two
companies' marketing and distribution, giving them new sales opportunities. 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.

Varieties of Mergers

From the perspective of business structures, there is a whole host of different mergers.

Here are a few types, 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. 
 Vertical merger. A customer and company or a supplier and company. Think of a
cone supplier merging with an ice cream maker. 
 Market-extension merger. Two companies that sell the same products in different
markets. 
 Product-extension merger. Two companies selling different but related products
in the same market. 
 Conglomeration. Two companies that have no common business areas. 

A. Are the following statements about acquisitions and mergers true or false?

1. Mergers and acquisitions are unlikely to improve share

value.
2. Companies strive to engage in mergers and acquisitions
because it is the easiest way to secure fast growth.
3. When a target company agrees to be purchased it means a
hostile acquisition.
4. Merger synergies are great as they may give companies
the needed technology, people, infrastructure, global sales,
marketing and distribution opportunities.
5.Companies that chose a venture acquisition
strategy are relieved from necessity to rethink
the role of R&D and knowledge management
within their corporations, to fit the new offerings
with the near-term strategic and operating
portfolio, and to prepare a sales,
manufacturing, and distribution organization.
Research and Development
6.Acquisition and integration of ventures is an
effective method for supplementing a product
and business portfolio with the best available
technology, as well as enter emerging markets,
with speed.

7.This strategy (A&M) requires learning about

priorities, markets, technologies, speed of
product/service development, integration of
achievement-oriented people, and cultural fit.

8. In today's era driven by systemic innovation,

acquiring and integrating capabilities, know-
how, and technologies has become the least
 efficient route to growth and a strong alternative
to internal research and product development.
9. The role of mergers and acquisitions has evolved as a strategy tool for fast-
track technology-led companies.
10. Merger is the agreement between two parties to work together on one project.

Definitions and Examples

Mergers and takeovers

Mergers, takeovers and joint ventures

In the modern business world, the ownership of companies often changes. This can
happen in different ways:

■ a merger: this is when two companies join together to form a new one (e.g. Exxon
and Mobil, America Online and Time Warner).

■ a takeover or acquisition: this is when one company buys another

one (e.g. Vodafone and Mannesmann, Daimler-Benz and Chrysler). This can happen
in two ways. Firstly, a company can offer to buy all the shareholders' shares at a
certain price (higher than the market price) during a limited period of time. This is
calleda takeover bid. Secondly, a company can buy as many shares as
possible on the stock market, hoping to gain a majority. This is called a raid.

Investment banks have mergers and acquisitions (M&A) departments that advise
companies involved in mergers and takeovers.

Companies can also work together without a change of ownership. For example,
when two or more companies decide to work together for a specific project or
product, this is called a joint venture. An example is Sony Ericsson, which
makes mobile phones

"Well the merger is over, now the takeover starts."

Hostile or friendly?
There are two types of takeover bid. If a company's board of directors agrees to a
takeover, it is a friendly bid (and if the shareholders agree to sell, it becomes a
friendly takeover). If the company does not want to be taken over, it is a hostile bid
(and if successful, a hostile takeover). Companies have various ways of defending
themselves against a hostile bid. They can try to fin d a white knight -
another company that they would prefer to be bought by. Or they can use the
poison pill defence ('eat me and you'll die!1) which involves issuing new shares at a
big discount. This reduces the holding of the company attempting the takeover, and
makes the takeover much more expensive.

Integration:
Horizontal integration is when a
company gets bigger by acquiring
competitors in the same field of
activity. Vertical integration is
acquiring companies involved in other
parts of the supply chain, usually to
make cost savings. There are two
possibilities: backward integration is
acquiring suppliers of raw materials or
components; forward integration is
buying distributors or retail outlets.
Companies can also buy businesses in
completely different fields, which is
known as diversification. This can be
done to reduce the risk involved in
operating in only one industry - but
diversifying into completely different
industries is a risk itself.
B. Fill in the gaps using appropriate terms:

1-I want to work in the mergers and Acquistions department of an investment

bank.
2-Beverage Partners Worldwide is a Joint-Venture... between the Coca-Cola
and Nestlé companies, making ready-to-drink teas and coffees.
3-After their ...,Merger , Union Bank of Switzerland and Swiss Bank
Corporation had combined assets of $600bn.
4-we started with a Raid, buying all the stocks available on the stock
exchange.
5-we made a .Takeover bid.. , offering 20 percent above market price, and
bought 40 percent of the company.
6-Telecom Italia is looking for a .White-knight.. to rescue it from a unwanted
takeover.
7-Mackenzie Financial Corp is planning a huge rights issue as a ..Poison Pill.
to fight off C.I. Fund Management's takeover offer.
8-The company decided to sell 45 percent to the public, and keep a 55
percent Majority... stake.
9-Colonial has agreed to a .Friendly takeover.. takeover by Commonwealth
Bank.
10-Switzerland's biggest engineering company has a 20 percent Stake... in its
US counterpart.

C. Match newspaper headlines with the following processes

1-Shell Purchases 30 A-horizontal integration

2-Hotel Chain to Buy Furniture Manufacturer to Supply its New Hotels

B-vertical integration

3-Coca-Cola Acquires Columbia Pictures for$ 700 million.

E-diversification

4-BP Now Controls the Entire Supply Chain, From the Oil Refinery to the
Petrol Pump D-backward integration
 5-Electrical Retailer Dixons Bids for High Street Competitor Currys
C-forward integration

Reading 2: Joint ventures

Economic enterprises with the participation

of Russian organizations and firms from
foreign countries were named “joint
ventures”. In our country they were first set
up joint venture in the early 1920s but in the
early 1930s the overwhelming majority of
joint –stock companies here ceased to
exist. In the late 1980s, with the revival of
commodity-money relations, joint ventures
began to appear in Russia for the second
time.
Cease:stop

Territory:land

Joint-venture

Joint-stock companies

The main features of interest to Russian participant are:

 to satisfy the requirements of the domestic market;

 to attract foreign technology and foreign management experience;
 to improve the export base of Russia and reduce irrational imports by means of
import substitution.

A joint venture becomes a juridical person after it has been registered with the Ministry
of Finance. The foundation documents and the Feasibility Study are the most important
documents for the application procedure. If the Parties want to form a partnership a
Protocol of Intent is normally signed.

Foundation documents

Foundation documents include the Agreement between the раrtners оn the

establishment of а joint venture and the Charter оr Statute of а joint venture. These
documents outline the legal status of а joint venture, the funds raised, Management and
Personnel and some other provisions.

Feasibility study

The Feasibility Study is jointly prepared bу the partners involved. It covers the objective
of а соmраnу, the working capital, the product to bе manufactured, the marketing
possibilities, the technical back-up of а project. Only after registration the соmраnу mау
ореn а bank account and conclude agreements and contracts in its own nаmе.

Management and personnel

А joint venture must bе managed bу а Board of Directors represented bу the Russian
and foreign participants. The Board is а governing body which sets out the strategy of а
соmраnу. Day-to-day management must bе determined bу а Directorate formed from
Russian and foreign citizens.

Formation of funds

The authorized fund is formed from initial contributions made bу the Parties and mау bе
supplemented from the profits of а joint venture. Contributions to this fund mау bе made
in cash and in kind. А joint venture is obliged to establish а reserve fund of 25 per cent
of the value of the authorized fund. It is formed bу way of annual deductions from the
profits of а joint venture. Contributions tо this fund аге tax-free.

The research and development fund is created tо develop production. It is viewed аs

reinvestment and is tах deductible. All the other funds created bу а joint venture аrе
taxed.

Profits

After deductions have bееn made to the funds, the rest of the profit is divided between
the partners in proportion to their share in the authorized fund.

The profit due to the foreign partner mау bе placed in the bank, spent within the country
оr repatriated abroad. Profits mау bе transferred from Russia to foreign countries bу
way of import substitution.

А joint venture is subject to а tах оn its profits. According to the tax regulations а joint
venture is exempt from the profit tax for 2 years. The tах holiday begins from the
moment profits аге first made bу а joint venture.

Free from / spared

Legal status

А joint venture is а legal person. It mау sue and bе sued and mау also appeal to
Russian and third party courts. In case of dissolution the foreign participant has the right
to recover the initial contribution which he made to the authorized fund.

A. Study the topical vocabulary.

strategic alliance

Synergies

market share
shareholder value

Merger

take over bid

Acquisition

to enhance

economies of scale

Equation

cost-efficient

to gain

to survive

from legal point of view

to cease

to swallow

to go forward

Precisely

Surrender

to proclaim

Connotation

Palatable

Hostile

cost savings

Reduction

job cuts

Stationery

business applications
competitive edge

to expand

investment community

compensation package

B. Collocations: Match the verbs with the nouns.

Develop product/relation
Satisfy requirement
Sign agreement/ protocol of intent
Raise fund
Cover objectives
Manufacture product
Conclude agreement
Open account
Make: agreement / transaction/profit

1) set uр Agreement

2) carry out Funds

3) develop Profit

4) satisfy Product
 5) sign Transactions

6) raise Account

7) covег protocol of
intent

8) manufacture Requirements

9) conclude joint venture

10) ореn Relations

11) make Objective

C. Use proper prepositions:

1-has bееn registered .with.. the Ministry of Finance

2-the agreement …between partners

3-is managed..by. а Board of… Directors

4-contribution ..in. kind оr...in cash

5-in proportion .to.. the share..of. the authorized fund

6-mау bе transferred from… Russia .to.. foreign countries

7-..by. way..of. import substitution

8-is exempt...from the profit tax for… 2 years

D. Find synonyms to the following words:
(to found-build-begin-start),
to determine (control-decide- to discover-find out),
to form ( shape-make- model-create)
, to satisfy ( to please-convince-persuade)
, to be taxed ( to be strained-stretched),
to take part:( to join-partake- to get involved)
, to decrease: (to reduce)
, needs (demands-obligations)
, goal (objective-target)
, national(civil-internal-domestic-public)
, principal(main-major-primary-leading)
, by means of (by what method-whereby)
, juridical, (legal-lawful-official)
tax-free.(exempt-untaxed-duty-free-tax-exempt)
E. . Answer the following questions.

1. What kind of organizations are called

“joint ventures”?
2. When were joint ventures set up in our
country for the first and for the second time?
3. When did the overwhelming majority of
joint-stock companies in the territory(land)
of Russia cease to exist?
4. What are the main features of interest to
Russian participants nowadays?
5. What document is signed if the Parties
want to form a partnership?
6. In what case does a joint venture
become a juridical (legal) person?
7. What are the most important documents
for the application procedure?
8. What body is a joint venture managed
by?
9. How is the authorized fund formed?
10. In what way is the reserve fund formed?
11. Why is the research and development
fund exempt from tax?
12. In what proportion is the profit divided
between the partners?
13. How can foreigners’ profits be
transferred from Russia to foreign
countries?
14. Is joint venture a legal or a physical
person?
15. What can a foreign participant do in
case of dissolution?
F. Match the terms on the left to the definitions on the right.

1. alliance 6-getting control of a company by buying over

50% of its shares

2. joint venture 5-Two or more companies joining to form a

larger company

3. LBO (leveraged 7-what stocks in a public company are worth Language

buyout) Focus:

4. MBO (management 2-a business activity in which two or more I -Linking

buyout) companies have invested together Words:

5. merger 4-when a company's top executives buy the Read the

company they work for text about
takeover
6. takeover / 8-an offer to buy and
acquisition choose
one of the
7. shareholder value 10-additional advantages, profits that are three
produced by two organizations combining their
ideas and resources

8. bid 3-buying a company using a loan borrowed

against the assets of the company that's being
bought

9. vertical integration 9-controlling all stages of one particular type of

business

10. synergy 1-an agreement between two or more

organizations to work together
connectors to fill each gap.

1. although/ for example/ however

2. because/ furthermore/ owing to
3. therefore/ in other words/ yet
4. in other words/ on the contrary/ owing to
5. for instance/ on the contrary/ thus
6. because of/ due to/ moreover
7. although/ however/ for instance
8. because/ even though/ for example
 9. conversely/ i.e. / since
10. although/ however/ for instance
11. due to/ nevertheless/ therefore
12. although/ because/ moreover
13. because/ nevertheless/ yet
14. consequently/ even though/ in addition to

Mannesmann’s chairman, Klaus Esser, opposed the Vodafone bid. He insisted that
British and American style ‘predator’ capitalism has no way in Germany. He pointed out
(1), that no German company had ever made a hostile bid for another German
company. Germans believed that the permanent threat of a takeover or a buyout, which
exist in America and Britain, is a disincentive to long-term capital investment. (2), many
German commentators claimed that workers are at least as important as shareholders,
and companies are places where people work rather than assets to be bought or sold.
(3) Esser’s main argument against Vodafone was that its offer price of $129 billion was
too low. He claimed that the bid did not represent good value for shareholders, and the
company had a better strategy and future plans than the British phone operator.

Many German business leaders argued that their corporate culture preferred
consensus: (4) Companies want to please a large majority of their shareholders, not just
the few who are looking for a quick profit. Most British commentators, (5), claimed that
German search for consensus was just a way of resisting change and inevitable global
trends. (6), German companies regularly bought foreign ones: in the previous few years,
(7), BMW had bought the British car companies Rolls Royce and Rover.

+(8) Many financial analysts considered the original offer price to be generous – (9) Too
high – Vodafone was obliged to increase it several times. Arbitrageurs succeeded in
buying about 10% of Mannesmann’s shares in the hope of making a quick profit. Esser
was very critical of these people. He accepted, (10), that this was the nature of capital
markets, and that there was nothing he could do about it. (11), 60-70% of Mannesmann
shares were owned by institutional investors. (12) Some of these were German banks,
most of them were foreign financial institutions. When Vodafone increased its offer price
sufficiently, several of these investors accepted the bid, often (13) They already
possessed Vodafone shares. (14), Vodafone was able to acquire Mannesmann for $160
bn.

II-Inversion:
Inversion can be used for emphasis when certain
words/expressions come at the beginning of a sentence.
Study the patterns and the list of words/expressions in the
box. Then practise inverting the sentences that follow.
-      Never before  did I compromise my goals. - Under no circumstances should
you smoke here. - Rarely does he attend our classes!

Hardly had I finished writing the letter when the phone rang. - Only by guessing can you
solve this puzzle.

Under no Never …
circumstances ...
Not only . . . but Rarely . .
also . . .
Only . . . On no account …
Hardly . . . when … Not until . . .

A-Finish rewriting the following sentences to make them more emphatic: 

1-You should not give up if you experience a rejection

or disappointment.
On no
account .............................................................................
2-She is very determined and has a lot of initiative.

Not only.......................................................................................

3- We had hardly launched the product, when orders started

flooding in.
      Hardly
………………………………………………………………….
4-One has rarely faced the number of problems that this
assertive manager did in setting up his business.
Rarely...........................................................................................
5-It wasn’t until H&M agreed to sell our products that the
business really took off.
Not until ......................................................................................
B-The words in the following sentences are in the wrong order. Put them in
the correct order, using inversion to make each sentence emphatic in tone.

1-tasted have never I pizza better a

2-new products do lot money rarely a make of

3-costs we only profit our can by a reducing make

4-on we commercials the no television can account moment afford at

5-the supermarkets under no put products their circumstances will our on

shelves.

Speaking:
A-Match each item on the left with the correct description on the right. Then use each phrase once only
to complete the phrases

I’m afraid I don't agree with making a suggestion

you. reformulating
Could I just come in here. . .? moving to a new
In other words. . . point
I absolutely agree. giving an opinion
I think………….. setting objectives
Let’s recap. asking for an
How about. . .? opinion
What do you think. . .? interrupting
What we've got to do. . . disagreeing
We ought to move on. . . summarising
agreeing
B-Use each phrase once to complete the following dialogue:

Frank: Let's get started then……1…………. .' is, er, discuss how Derek's interview

with Charlie should go ...

Jennifer: Well, I think it's usually useful to break this kind of news midweek, rather than
doing it on a Friday afternoon.

Frank: Certainly,…………2………….

Jennifer: . . . There should be a package we offer him, and quite a few details to sort
out.

Frank: Yes certainly. Erm, I think ………3……………now, so the next question is, erm, you
know, how are we going to do it, and where?...................4…………….. .Jennifer?. . .

Derek ... I haven't really thought this through, but, erm, I mean,….5……….it

might be better to do it outside the office in a sense.

Jennifer: …..6…………..It needs to be you in your managerial role, not you in your role as a
personal friend. ... I certainly think it should be done, er, somewhere in the office, and
preferably in his office rather than in yours . . .

Frank Well,……….7………… a lunch, Derek, in a quiet pub or restaurant?

Derek So, the in-between thing, it's a working lunch. It's work, but it's not in the office. It
could be a compromise, yes.

Jennifer: Well,……..8………. please? I tend to think it might be better if you did do it in the

office . . .

Frank I mean, Jennifer, you've had a lot of experience of this. How do people react
when they . . .

Jennifer: People tend to be rather shocked, they tend to be angry, but rather briefly, and
they do tend to ...

Derek ………9…………… , they're not able to formulate an immediate and rational response .. .

Derek Yes, I mean but briefly, you're saying that I should get to the point and

Frank Give him the background.

say 'youknow, Charlie, it has been decided that, basically, you are being made
redundant, and the normal terms and conditions of our contract will apply . . .

Frank Ok, so ……..10………..I think we're agreed, Derek, that you will actually be telling
Charles . . .

Derek Yes.

Frank And that you'll do it, er, inside the company, and you'll do -it probably in your
office. Right'