merger & aquisitions ppt.

Ch7-1

TOPIC NAMETOPIC NAMETOPIC NAMETOPIC NAME

Mergers and AcquisitionsMergers and AcquisitionsMergers and AcquisitionsMergers and Acquisitions

STUDENT’S NAME : Vijaykumar Nishad – 23

Ashwini Jagtap – 13 Mahendra Jain – 15 Aamir Kapoor – 17 Nozer Khan – 19

STUDENT’S NAME : Vijaykumar Nishad – 23

Ashwini Jagtap – 13 Mahendra Jain – 15 Aamir Kapoor – 17 Nozer Khan – 19

Ch7-2

Mission Objectives

ExternalAnalysis

InternalAnalysis

StrategicChoice

StrategyImplementation

CompetitiveAdvantage

The Strategic Management Process

Corporate LevelStrategy

Which Businessesto Enter?

• Vertical Integration• Diversification

• Strategic Alliances

Mode of Entry?

• Mergers & Acquisitions

Ch7-3

Mergers and AcquisitionsMergers and AcquisitionsMergers and AcquisitionsMergers and Acquisitions

MergerMergerA transaction where two firms agree to integrate their A transaction where two firms agree to integrate their operations on a relatively coequal basis because they operations on a relatively coequal basis because they have resources and capabilities that together may have resources and capabilities that together may create a stronger competitive advantagecreate a stronger competitive advantage

AcquisitionAcquisitionA transaction where one firm buys another firm A transaction where one firm buys another firm with the intent of more effectively using a core with the intent of more effectively using a core competence by making the acquired firm a competence by making the acquired firm a subsidiary within its portfolio of businessessubsidiary within its portfolio of businesses

TakeoverTakeoverAn acquisition where the target firm did not solicit An acquisition where the target firm did not solicit the bid of the acquiring firmthe bid of the acquiring firm

Ch7-4

• Parent stocks are usuallyParent stocks are usuallyretired and new stock issuedretired and new stock issued

• Name may be one of the Name may be one of the parents’ or a combinationparents’ or a combination

• Can be a controllingshare, a majority, or all of the target firm’sstock

• Can be friendly orCan be friendly orhostilehostile

Mergers & Acquisitions Defined

• Usually done throughUsually done througha tender offera tender offer

• One of the parents usuallyOne of the parents usuallyemerges as the dominantemerges as the dominantmanagementmanagement

Ch7-5

Advantages of Mergers & Acquisitions

1- Merger is legally simple and does not cost much .1- Merger is legally simple and does not cost much .

2- A merger does not require cash.2- A merger does not require cash.

3- A merger allows the shareholders of smaller entities 3- A merger allows the shareholders of smaller entities to own a smaller piece of a larger pie, increasing their to own a smaller piece of a larger pie, increasing their overall net worth.overall net worth.

4- A merger allows the acquirer to avoid many of the 4- A merger allows the acquirer to avoid many of the costly and time-consuming aspects of asset purchases.costly and time-consuming aspects of asset purchases.

5-5- Reducing your costs , overheads and competition. Reducing your costs , overheads and competition.

Ch7-6

Disadvantages of Mergers & Acquisitions

1- merger must be approved by a vote of the 1- merger must be approved by a vote of the stockholders of each firm .stockholders of each firm .

2-obtaining the necessary votes can be time-2-obtaining the necessary votes can be time-consuming and difficult .consuming and difficult .

3-3- M&A activity is a relatively high risk of M&A activity is a relatively high risk of failure.failure.

4- Diseconomies of scale if business becomes too 4- Diseconomies of scale if business becomes too large, which leads to higher unit costs. large, which leads to higher unit costs. 

Ch7-7

Types of MergersTypes of Mergers

Horizontal merger - Two or more firms from the same field.

Vertical merger - Integration of companies with supplementary relationship.

Conglomerate merger - Unification of different kinds of businesses under one flagship company.

Ch7-8

Types of AcquisitionsTypes of Acquisitions

FriendlyFriendly - - Management of both the companies Management of both the companies agree mutually for takeover.agree mutually for takeover.

HostileHostile - -An aggressive firm tries to acquire the firm An aggressive firm tries to acquire the firm

against the latter’s desire.against the latter’s desire.Linked with poor management and performance.Linked with poor management and performance. In cases where chances of making profits exceed In cases where chances of making profits exceed

the cost of takeover considerably.the cost of takeover considerably.Promoters with less than 50% stake.Promoters with less than 50% stake.

Ch7-9

Problems inProblems inAchieving SuccessAchieving Success

Problems inProblems inAchieving SuccessAchieving Success

IntegrationIntegrationdifficultiesdifficulties

Inadequate Inadequate evaluation of targetevaluation of target

Too muchToo muchdiversificationdiversification

Large orLarge orextraordinary debtextraordinary debt

Inability toInability toachieve synergyachieve synergy

Managers overlyManagers overlyfocused on acquisitionsfocused on acquisitions

Too largeToo large

IncreasedIncreasedmarket powermarket power

OvercomeOvercomeentry barriersentry barriers

Lower riskLower riskcompared to developing compared to developing

new productsnew products

Cost of newCost of newproduct developmentproduct development

Increased speedIncreased speedto marketto market

IncreasedIncreaseddiversificationdiversification

Avoid excessiveAvoid excessivecompetitioncompetition

AcquisitionsAcquisitions

Reasons forReasons forAcquisitions Acquisitions

Ch7-10

Reasons for AcquisitionsReasons for AcquisitionsReasons for AcquisitionsReasons for Acquisitions

Example:Example: Belgian-Dutch Fortis’ acquisition of American Belgian-Dutch Fortis’ acquisition of American Banker’s Insurance GroupBanker’s Insurance Group

Example:Example: Watson Pharmaceuticals’ acquisition of TheraTechWatson Pharmaceuticals’ acquisition of TheraTech

Example: Example: British Petroleum’s acquisition of U.S. AmocoBritish Petroleum’s acquisition of U.S. Amoco

Increased Market PowerIncreased Market PowerAcquisition intended to reduce the competitive balance of Acquisition intended to reduce the competitive balance of the industrythe industry

Overcome Barriers to EntryOvercome Barriers to EntryAcquisitions overcome costly barriers to entry which may make Acquisitions overcome costly barriers to entry which may make “start-ups” economically unattractive“start-ups” economically unattractive

Buying established businesses reduces risk of start-up Buying established businesses reduces risk of start-up venturesventures

Lower Cost and Risk of New Product DevelopmentLower Cost and Risk of New Product Development

Ch7-11Example:Example: General Electric’s acquisition of NBCGeneral Electric’s acquisition of NBC

Example:Example: Kraft Food’s acquisition of Boca BurgerKraft Food’s acquisition of Boca Burger

Example:Example: CNET’s acquisition of mySimonCNET’s acquisition of mySimon

Reasons for AcquisitionsReasons for AcquisitionsReasons for AcquisitionsReasons for Acquisitions

Increased Speed to MarketIncreased Speed to MarketClosely related to Barriers to Entry, allows market entry Closely related to Barriers to Entry, allows market entry in a more timely fashionin a more timely fashion

DiversificationDiversification

Quick way to move into businesses when firm currently lacks Quick way to move into businesses when firm currently lacks experience and depth in industryexperience and depth in industry

Reshaping Competitive ScopeReshaping Competitive ScopeReshaping Competitive ScopeReshaping Competitive ScopeFirms may use acquisitions to restrict its dependence on a Firms may use acquisitions to restrict its dependence on a single or a few products or marketssingle or a few products or markets

Ch7-12

Problems with AcquisitionsProblems with Acquisitions

Example:Example: Marks and Spencer’s acquisition of Brooks BrothersMarks and Spencer’s acquisition of Brooks Brothers

Example:Example: Intel’s acquisition of DEC’s semiconductor divisionIntel’s acquisition of DEC’s semiconductor division

Example:Example: AgriBioTech’s acquisition of dozens of small seed AgriBioTech’s acquisition of dozens of small seed firmsfirms

Integration DifficultiesIntegration DifficultiesDiffering financial and control systems can make integration Differing financial and control systems can make integration of firms difficultof firms difficult

Inadequate Evaluation of TargetInadequate Evaluation of Target““Winners Curse” bid causes acquirer to overpay for firmWinners Curse” bid causes acquirer to overpay for firm

Large or Extraordinary DebtLarge or Extraordinary DebtLarge or Extraordinary DebtLarge or Extraordinary Debt

Costly debt can create onerous burden on cash outflowsCostly debt can create onerous burden on cash outflows

Ch7-13

Example:Example: Ford and JaguarFord and Jaguar

Example:Example: Quaker Oats and SnappleQuaker Oats and Snapple

Example:Example: GE--prior to selling businesses and refocusingGE--prior to selling businesses and refocusing

Inability to Achieve SynergyInability to Achieve SynergyJustifying acquisitions can increase estimate of Justifying acquisitions can increase estimate of expected benefitsexpected benefits

Problems with AcquisitionsProblems with Acquisitions

Overly DiversifiedOverly DiversifiedAcquirer doesn’t have expertise required to manage Acquirer doesn’t have expertise required to manage unrelated businessesunrelated businesses

Managers Overly Focused on AcquisitionsManagers Overly Focused on AcquisitionsManagers Overly Focused on AcquisitionsManagers Overly Focused on AcquisitionsManagers may fail to objectively assess the value of Managers may fail to objectively assess the value of outcomes achieved through the firm’s acquisition strategyoutcomes achieved through the firm’s acquisition strategy

Too LargeToo LargeLarge bureaucracy reduces innovation and flexibilityLarge bureaucracy reduces innovation and flexibility

Ch7-14