Mergers and

Acquisitions
МИЯ-21
Комогорцева Алена
Манасян Лиана
 Acquisition
• When one company takes over
another entity, and establishes itself
as the new owner, the purchase is
called an acquisition
• The target company ceases to exist,
the buyer absorbs the business, and
the buyer's stock continues to be
traded, while the target company’s
stock ceases to trade.
Merger
• Two firms of approximately the
same size, who join forces to move
forward as a single new entity,
rather than remain separately
owned and operated. This action is
known as a "merger of equals."

The Essence of Merger and Acquisitions:

 Conglomerate
• This is a merger between two or more companies engaged in
unrelated business activities.

Product Extension
• A combining of two or more companies that operate in the same
market
• When a new product line from one company is added to an existing
product line of the other company

Market Extension
• Companies seek to gain access to a bigger market and, thus, a bigger
client base.

Types of Mergers and Acquisitions:

 Horizontal
• Consolidation between two or more competitors offering the same
products or services

Vertical

• Occurs when two companies operating at different levels within the same industry's
supply chain combine their operations. Such mergers are done to increase synergies
achieved through the cost reduction

Types of Mergers and Acquisitions:

 1. Statutory (the acquirer is much larger
than the target and acquires the target’s
assets and liabilities. The target
company ceases to exist as a separate
entity.)
2. Subsidiary (the target becomes a
subsidiary of the acquirer but continues
to maintain its business)
3. Consolidation (both companies in the
transaction cease to exist after the deal,
and a completely new entity is formed)
Forms of
Integration:
 • 1) Unlocking synergies
• 2) Higher growth
• 3) stronger market power
• 4) diversification
• 5) Tax benefits

Reasons for Mergers and Acquisitions:

 • Stock purchase
• Asset purchase
• Method of payment
• Stock
• Cash

Forms of acquisitions
 Valuation methods
- Discounted cash flow
(DCF) methods
- Comparable company
analysis
- Comparable
transaction analysis

What is Takeover?
• General term referring to transfer of control of
a firm from one group of shareholders to
another group of shareholders. Change in the
controlling interest of a corporation, either
through a friendly acquisition or an unfriendly,
hostile, bid.
• When an "acquirer" takes over the control of
the "target company", it is termed as
Takeover.
•
When an acquirer acquires "substantial
quantity of shares or voting rights" of the
Target Company, it results into substantial
acquisition of shares.
Takeover
What is the difference between
Merger and Takeover?
• A takeover is usually a hostile act,
where the acquirer will surpass the
target company’s board of directors
and will purchase more than 50% of
the shares to obtain a controlling
stake in the firm. An acquisition is
quite similar to a takeover in that one
company will purchase the other;
however, usually on a preplanned and
orderly manner in which both parties
strongly agree if beneficial to both
firms.
 • Hostile Takeover – A takeover
attempt that is strongly resisted by
the target firm.
•
A famous hostile takeover: the
case of the Internet provider
America Online (AOL) and Time
Warner in 2000.
• In retrospect, the plan to bring the
two companies together has been
dubbed by the press as "the worst
merger in history."
Takeover Might Be:
• Friendly Takeover – Target
company's management and board
of directors agree to a merger or
acquisition by another company.
• An example of an acquisition would
be how the Walt Disney
Corporation bought Pixar
Animation Studios in 2006. In this
case, the takeover was friendly, as
Pixar's shareholders all approved
the decision to be acquired.
 What Is a Tender Offer?
A tender offer is a type of public takeover bid constituting an offer to
purchase some or all of shareholders' shares in a corporation.
Tender offers are typically made publicly and invite shareholders to
sell their shares for a specified price and within a particular window
of time.

Tender Offer
 • A tender offer is a public solicitation to all shareholders requesting that
they tender their stock for sale at a specific price during a certain time.
• The investor normally offers a higher price per share than the
company’s stock price, providing shareholders a greater incentive to
sell their shares.
• In the case of a takeover attempt, the tender may be conditional on
the prospective buyer being able to obtain a certain amount of shares,
such as a sufficient number of shares to constitute a controlling
interest in the company.

Key Takeaways:
 What Is a Target Firm?
A target firm or a target company is a company that is the subject of an
attempted acquisition by a potential buyer. Generally speaking, the
acquisition will result in a change of control of the target company.
Ownership will transfer to the acquiring company, with the acquiring
company (also referred to as the 'acquirer') being the surviving corporate
entity.

Target Firm
 • A target firm is an attractive company sought for merger or
acquisition.
• Only if the target firm's management, shareholders, and board of
directors agree with the takeover can the transaction occur
smoothly.
• If not in agreement, the target firm can use special tactics to try to
stop a hostile takeover, such as the crown jewel or poison pill
strategy etc.
• Target firms are usually acquired at a premium, a value exceeding
its current fair market value.

Key Takeaways:
 Sometimes, the target firm's management or board of directors are
against the merger or acquisition. They may use different tactics,
such as:
• The Poison Pill;
• The Crown Jewel defence;
• The Golden Parachute;
• The Pac-Man defence.

Target Firm Resistance Tactics

 Why Do Mergers Fail?
• Lack of a post-merger plan to deliver on synergy and control;
• Lack of Accountability;
• Culture Shock;
• Failure to consider external constraints;
• Managerial Egos;
• The Market Price Hurdle.

The Post-Deal Performance of Merged Companies

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