Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                

Merger & Acquisition

Download as docx, pdf, or txt
Download as docx, pdf, or txt
You are on page 1of 17
At a glance
Powered by AI
The document discusses concepts related to mergers and acquisitions including different types of mergers and acquisitions, motivations for mergers and acquisitions, and benefits and problems with mergers and acquisitions.

The document discusses types of mergers such as horizontal mergers, vertical mergers, and conglomerate mergers.

The document discusses types of acquisitions such as friendly acquisitions and hostile takeovers.

DEPARTMENT OF BUSINESS ADMINISTRATION

Course Financial Management


Level M.Com 3rd Semester
Course Code 8513
Topic Assigned Merger & Acquisition
Name of Tutor Mr. Khurram
Name of Student Zahoor Ud Din
Roll No BR544834
Semester Spring 2019
ACKNOWLEDGEMENT
 
All praise to Allah, the most gracious and the most merciful. Without His blessing and
endorsement this report would not have been accomplished. We are very much thankful for the
guidance, assistance & cooperation of many helpful people on the preparation of this report. We
are especially grateful to our faculty teacher Mr. Khurram for sharing his valuable knowledge
and expertise throughout the course which enabled us in producing such successful assignment
within a short period of time.
Contents
Abstract............................................................................................................................................4

Introduction......................................................................................................................................5

What is Merger & Acquisition........................................................................................................5

Types of Mergers.............................................................................................................................5

What is Acquisition.........................................................................................................................7

Types of Acquisition........................................................................................................................7

Difference between Merger & Acquisition.....................................................................................9

Motives for Mergers & Acquisition..............................................................................................10

Benefits of Mergers & Acquisition................................................................................................10

Problems of Mergers & Acquisition..............................................................................................10

Strategies of Merger and Acquisition............................................................................................10

Top 3 Merger and Acquisition Deals.............................................................................................11

Practical Study.............................................................................................................................13

Conclusion.....................................................................................................................................16

References......................................................................................................................................17
Abstract
Along with globalization, merger and acquisition has become not only a method of external
corporate growth, but also a strategic choice of the firm enabling further strengthening of core
competence. The megamergers in the last decades have also brought about structural changes in
some industries, and attracted international attention. A number of motivations for merger and
acquisition are proposed in the literature, mostly drawn directly from finance theory but with
some inconsistencies. Interestingly, distressed firms are found to be predators and the market
reaction to these is not always predictable. Several financing options are associated with takeover
activity and are generally specific to the acquiring firm. Given the interest in the academic and
business literature, merger and acquisition will continue to be an interesting but challenging
strategy in the search for expanding corporate influence and profitability.
Introduction
Mergers and acquisitions are increasingly becoming strategic choice for organizational growth,
and achievement of business goals including profit, empire building, market dominance and
long term survival. The ultimate goal of this is however maximization of shareholder value.
The phenomenon of rising M&A activity is observed world over across various continents,
although, it has commenced much earlier in developed countries (as early as 1895 in US and
1920s in Europe), and is relatively recent in developing countries.

What is Merger & Acquisition


Mergers and acquisitions (M&A) are defined as consolidation of companies.

What is Merger?
 Merger is the combination of two companies to form one new company.
 The combination of the two companies involves a transfer of ownership.
 Both companies surrender their stock and issue new stock as a new company.

Way of Mergers
A merger can take place in following way:-
 Buy purchasing of assets
 Buy purchasing common shares
 By exchanging shares for assets
 By exchanging shares for shares

Types of Mergers
1. Horizontal Mergers
2. Vertical Mergers
3. Conglomerate Mergers
4. Concentric Mergers
Horizontal Mergers
A Merger occurring between companies in the same industry

Vertical Merger
When two companies produce same goods and services for one specific product

Conglomerate Mergers
A merger between firm involved in totally unrelated business activity.
Concentric Mergers
The merger of firms which are into similar type of business

What is Acquisition
When one company takes over another and clearly established itself as a new owner, the
purchase is called an acquisition.

Types of Acquisition
1. Friendly acquisition
2. Reverse acquisition
3. Back flip acquisition
4. Hostile acquisition

Friendly acquisition
Both the companies approve the acquisition under friendly terms.
Reverse acquisition
A private company takes over a public company.

Back flip acquisition


The purchasing company becomes a subsidiary of the purchased company.

Hostile acquisition
Here, the entire process is done by force.
Difference between Merger & Acquisition
Basis Mergers Acquisition
Fusion of two or more
When one entity purchases the
Meaning companies voluntarily form a
business of other entity
new company

Formation of new Firm Yes No

To decrease competition &


Purpose increase operational For instantaneous Growth
Efficiency
Size of the acquiring company
Size of merging companies is
Size of business is bigger than acquired
more or less same
company
No. of companies
3 2
Involved

Mergers: Why & Why Not

Why is it Important Problem with Merger


• Increase market share • Class of corporate cultures
• Economies of scale • Increased business complexity
• Profit for research and development • Employees may be resistant to change
• Reduction of competition

Acquisition: Why & Why Not

Why is it Important Problem with Acquisition


• Increase market share. • Inadequate valuation of target.
• Increased diversification. • Inability to achieve synergy.
• excessive competition and cost maximization • Finance by taking huge debt
Motives for Mergers & Acquisition
 Economies of large scale business: Enjoys both internal and external economies.
 Elimination of competition: It eliminates intense & wasteful expenditure by different
competing organization.
 Desire to enjoy monopoly power: M&A leads to monopolistic control in the market.
 Adoption of modern technology: Corporate organization requires large resources.

Benefits of Mergers & Acquisition


 Greater value generation
 M&A generally succeed in generating cost efficiency through the implementation of
economies of scale.
 Gaining cost efficiency
 The joint companies benefits in terms of cost efficiency as 2 firms form new bigger
company.
 Increase in market share
 An increase in market share is one of the possible benefits of M&A.
 Gain higher competitiveness
 The new firm is usually more cost-efficient and competitive as compared to its
financially weak parent organization

Problems of Mergers & Acquisition


• Integration difficulties
• Large or extraordinary debt
• Managers overly focused on acquisition
• Overly diversified

Strategies of Merger and Acquisition


 There is an important need to assess the market by deciding the growth factors
through future market opportunities.
 The integration process should be taken in line with consent of management from
both the companies venturing into the merger.
 Restructuring and future parameters should be decided with exchange of information
and knowledge from both ends.

Top 3 Merger and Acquisition Deals


Practical Study
Mobilink and Warid announced that they have agreed to merge both companies to become one
company within few months from today. CEOs of both companies held a press conference in
Lahore, where they explained to the media about the ins and outs of the entire deal.
Here we have compiled all the information for our readers at one place, so they get to know
about all the available details about the deal.

Mobilink-Warid Merger:

 Phase 1
o Mobilink will acquire 100% shares of Warid.
o Dhabi Group will get 15% shares of Mobilink.
o There’s no cash transaction involved, just the shares will be swapped
o This process may take up to six months from yesterday and is subject to
regulatory approvals.
o Till this phase is completed, both companies will continue to work separately as
they were.
o During phase 1, planning and strategy for the merged company will be devised.
All parties will get involved to lay down a plan on how to merge the companies.
We are assuming that majority of planing and strategy work has already been
done, but it won’t get public until this phase 1 completed.
 Phase 2
o In phase two, after the completion of phase 1, Warid and Mobilink will merge
into one company.
o This will take another six months to close and will require regulatory approvals.
o After this, there will be one company as an outcome.
o At this point, shifting of offices, consolidation of franchisees, retailers, and
various organizational functions and employees will occur.
o This single merged company may carry the name of Mobilink or may adopt any
new brand name.
o This single company will have single support operations, single sales and
distribution network, one single PR agency and so on.
 Phase 3
o After a lock-in period of 4 years, Dhabi Group will be allowed to sell its 15%
stakes at fair market value.
o VimpelCom will have first rights to these 15% shares, however, they may offer
Dhabi Group to sell these shares to anyone else.

 Governance:
o The Board of the merged company will be composed of 7 directors of which 6
will be nominated by VimpelCom; while Dhabi Group can appoint 1 director.
o Resolutions of the Board, in general, shall be decided by majority vote, except for
certain limited reserved matters.
o Jeffrey Hedberg will be the CEO of merged company.
o Andrew Kemp will be the CFO of merged company.
 Impact on Employees:
o It is now clear that certain, but yet unknown, number of employees from both
companies will be removed from the merged company. Management said that
employees, franchises, retailers and all other resources will be retained on need,
performance, and skill-set basis.
 Value Creation through Merger
o USD 115 million annual run-rate cost synergies, 90% expected by third year post-
closing; in excess of USD 500 million NPV cost synergies expected, net of
integration costs.
o Distributions projected within the first two years post-closing.
o Leverage: Mobilink 1.8x Net debt/EBITDA at signing.
o Pro forma revenue and EBITDA margin of USD 1.4 billion and above 40%
respectively.
 Impact on Customers:
o Current Warid and Current Mobilink customers will start using one single
network, one helpline and same services.
o Customers of merged company will be offered compound services of both Warid
and Mobilink, including 2G, 3G, 4G, MobiCash.
o Customers will be allowed to retain their current numbers

Merged company in numbers:

 Combined footprint and customer base of 45 million with 37.6% market share (w.r.t Sep
2015 data)
 Total number of Towers: 13,000
o Current Mobilink Towers: 8,000
o Current Warid Towers: 5,000
o Towers to be decommissioned: 3,000 to 4,000
o Towers after decommissioning: 9,000 to 10,000
o 3G Towers: 3,600
o 4G LTE Towers: 1,000
 Financials:
o Current Mobilink Revenues for 12 Months till Sep 2015: USD 1 Billion
o Current Warid Revenues for 12 Months till Sep 2015: USD 357 Million
o pro forma revenues for 12 months till Sep 2015: 1.36 billion
o Net Debt Position as of Sep 2015:
 Mobilink: USD 380 Million
 Warid: USD 470 Million
 Pro Forma: USD 850 Million
 Enlarged and improved mobile network with over 80% population coverage (2G)
 Largest network, with almost 5,000 3G and 4G/LTE sites
Conclusion
Corporate mergers and acquisitions in industrialized economies are frequent and it is
accepted that large mergers in particular have huge wealth redistribution effects as well as raising
concerns for corporate governance and takeover codes. This activity is an useful corporate
strategy, used by organizations to achieve various goals, and also acts as a mechanism for market
discipline. A number of motivations for takeover have been discussed, although these are not
mutually exclusive, while others are omitted altogether. This paper has reviewed studies on
merger motives, financing and payment methods, wealth creation, and distribution between
bidders’ and target shareholders and the impact of takeovers on the competitors of predator and
target companies (Chatterjee, 1986; Song and Walkling, 2000). The growing scope for studies on
takeover activity suggests that acquisition is an increasingly importance corporate strategy for
changing business environments, and has implications for future industrial reorganization and the
formation of new competitive opportunities.
References
(n.d.). Retrieved from https://www.investopedia.com/terms/p/perfectcompetition.asp
A PRACTICAL GUIDE TO MERGER, ACQUISITIONS. (2009). DELTA PUBLISHING
COMPANY.
Jenifer Piesse, H.-C. K. (2013). Merger and Acquisition: Definitions, Motives, and Market
Responses. Research Gate.
OSTROY, L. M. (2001). Perfect Competition and the Creativity of the Market. Journal of
Economic Literature , 479-535.
Professor Alexander Roberts, D. W. (2016). Mergers and Acquisitions.

You might also like