MERGERS AND ACQUISITIONS

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BY:RIDHI KOKILLA SAXENA SHIKHA SHARMA Your Logo MEGHA SHARMA

TABLE OF CONTENTS
1.

2. 3.

INTRODUCTION 1.1 Mergers 1.2 Acquisitions TYPES OF MERGERS ADVANTAGES OF MERGERS LIMITATIONS OF MERGERS TYPES OF ACQUISITIONS ADVANTAGES OF ACQUISITIONS LIMITATIONS OF ACQUISITIONS EXAMPLES OF M&A

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5. 6. 7. 8.

INTRODUCTION
In a general sense, mergers and acquisitions are very similar corporate actions - they combine two previously separate firms into a single legal entity. Significant operational advantages can be obtained when two firms are combined and, in fact, the goal of most mergers and acquisitions is to improve company performance and shareholder value over the long-term.

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.

MERGERS :A transaction where two firms agree to integrate their operations on a relatively co-equal basis because they have resources and capabilities that together may creater a competitive advantage. In business and economics, merger is a combination of two companies into one larger company. A merger involves the mutual decision of two companies to combine and become one entity; it can be seen as a decision made by two "equals".

ACQUISITIONS :A takeover, or acquisition, on the other hand, is characterized by the purchase of a smaller company by a much larger one. This combination of "unequals" can produce the same benefits as a merger, but it does not necessarily have to be a mutual decision. A larger company can initiate a hostile takeover of a smaller firm, which essentially amounts to buying the company in the face of resistance from the smaller company's management. A transaction where one firm buy another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of business.

TYPES OF MERGERS
Horizontal merger - Two companies that are in direct
competition and share the same product lines and markets. For example:- Acar manufacturing company merging with another car manufacturing company.

Vertical merger - A customer and company or a supplier

and company. For example :- 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. For example, merging of different businesses like manufacturing of cement products, fertilizer products, electronic products, insurance investment and advertising agencies.

ADVANTAGES OF MERGERS
Economies of scale:- This occurs when a larger firm with increased output can reduce average costs. International Competition:- Mergers can help firms deal with the threat of multinationals and compete on an international scale. Entering new markets- Mergers also make it easier for the company to enter new markets.

Monopoly power :- Merger leads to monopolistic control

in the market. In the situation of monopoly, a firm can easily make adjustment in the supply and price of products and can also increased the profit of the firm.

Eliminates the competition:-Mergers eliminates severe,

intense and wasteful expenditure by different competing organizations.

LIMITATIONS OF MERGERS
Expensive

TYPES OF ACQUISITIONS
Hostile Acquisitions :- the company, which is
to be bought has no information about the acquisition. The company, which would be sold is taken by surprise.

Friendly Acquisitions :- the two companies

cooperate with each other and settle matters related to acquisitions.

ADVANTAGES OF ACQUISITIONS
Increased market power:- Acquisition intends to reduce the competitive balance of the industry. Overcome barriers to entry:- Acquisitions overcome costly barriers to entry which may make startups economically unattractive. Diversification:-Acquisition helps the firm to move quickly into business when the firm currently lacks experience and depth in industry. Enhancing profitability :- A combination of two or more companies may result in more than average profitability due to cost reduction and efficient utilization of resources.

LIMITATIONS OF ACQUISITIONS
Integration Difficulties:-Differing Financial and control system can make integration of firm difficult. Tax Disadvantages:-There are also some tax disadvantages to acquisition, the main point here being that capital allowances are not available when purchasing a business through share acquisitions. Also, the taxable assets of the company are based on historical data and any differences in the data can be viewed in the deferred tax liability provision.

Employee Retention :- In an acquisition, the company will have employees at both firms performing similar jobs after the purchase is complete. The buyer commonly fires excess employees if it has too many workers doing the same tasks after the buyout. Because employees are concerned about a future layoff, some employees will start looking for other jobs or quit after the company announces its acquisition plan. Duplication:- An acquisition can lead to unnecessary duplication. When two similar companies are combined, many of the positions held in one business will be at work in the other. This leads to two people or departments doing the same job.

EXAMPLES OF M&A
VSNL acquired Teleglobe through a deal of $239 million. Motorola Mobility acquired by Google in $12.5 billion. Acer acquired US base cloud computing firm IG ware.

THANK YOU!

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