Merger & Acquisition
Merger & Acquisition
Merger & Acquisition
Introduction......................................................................................................................................5
Types of Mergers.............................................................................................................................5
What is Acquisition.........................................................................................................................7
Types of Acquisition........................................................................................................................7
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?
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.
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
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
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
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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.