Mergers and Acquisitions

Result of an agreement between two companies to join their

operations together

One company buys another company intending to control

the activities of the combined operations

Horizontal Mergers: It takes place when the two organizations producing a

similar product combine.

E.g.: GAP Inc. control three distinct companies, Banana Republic, Old Navy and the

GAP itself.

Vertical Mergers: It takes place when the two organizations working at

different stages in the production of the same product, combine.

E.g.: Carnegie Steel company, it control the mill, iron ore mines, coal mines, the

ships, the rail roads, the coke ovens.

Conglomerate Mergers: It takes place when two organizations operate in

different industries. A conglomerate is a large company that consists of

divisions of often seemingly unrelated business.

E.g.: Tata group, Reliance Industries etc.

Friendly Acquisition: In this generally poorly performing organization’s

board od directors willingly sells its shares to the acquiring organization.

Hostile acquisition: In this generally poorly performing organization’s

board of directors opposes to sell of the company. In this situation the

acquiring organization has two options:

A tender offer: It represents an offer to buy the stock of the target

organization either directly from the shareholders or through secondary

market.

Proxy fight: the acquirer solicits the shareholders of the target

organization in an attempt to obtain the right to vote their shares. The

acquiring organization hopes to secure enough proxies to gain control of the

board of directors and in turn replace the incumbent management.

To provide improved capacity utilization

To provide better use of the existing sales force

To reduce managerial staff

To gain economies of scale

To smooth out seasonal trends in sales

To gain access to new suppliers, distributors, customers,

products and creditors

To gain new technology

To reduce tax obligations

NPV (A + B) > NPV (A) + NPV (B)

Where, NPV (A + B) = the net present value of firm A and firm B assets

combine.

NPV (A) = the net present value of firm A’s assets alone.

NPV (B) = the net present value of firm B’s assets alone.

Undue focus on financial aspects– valuing assets, determining the price

and due diligence at the cost of human factor.

Line employees and managers at all level lose personal effectiveness as

a result of rumors, misinformation and worry.

Infrequent and irrelevant communication adds to the problem.

Without clear lines of authority and a clear understanding of where they

fit in, employees and managers are often caught in a web of conflicting

objectives and old loyalties.

The post merger entity demands a leadership to articulate a vision and

inspire others to join in that vision. But the stress and uncertainties

associate with the merger make the leader focus inwards and play safe.

• STAND ALONE, CULTURAL AUTONOMY

• NOT LONG LASTING

• EXAMPLE: 1) ALFA-ROMIO + FIAT

(UP TO 2007)

2)ASTON-MARTIN- FORD

(1994-2007)

ACQUISITION

STRATEGIES

• STRAIGHT STRATEGY

• CULTURAL ASSIMILATION

• BENEFITS FROM ABSORPTION STRATEGY

• EXAMPLES: 1)GREELY + VOLVO

2)BMW + ROLES-ROYES

3) VOLSWAGON + AUDI

• DEAL BETWEEN TWO EQUAL PARTY

• BEST PRACTICES ARE TAKEN & ARE INTEGRATED.

• COMPLEX DECISION MAKING PROCESS

• EXAMPLES:1)ASTRA-ZENECA

2)EXON-MOBILE

3)VOLSWAGON + SEAT

4) SALEEN + BASF

• BOTH PARTIES SEEK TO SHED THEIR PAST & ENTER IN TO A NEW PHASE ALTOGETHER

• MOST COMPLEX MERGER

• MOST DIFFICULT TO IMPLEMENT

• EXAMPLES: 1)COCA-COLA TRIED TO ACQUIRE DR. PEEPER( DR. PEEPER SNAPPLE GROUP)

• PARENT COMPONY ADOPTING ITSELF ACCORDING TO THE ACQUIRED COMP.

• PRINCIPLE & PRACTICES OF ACQUIRED COMP. WILL PREVAIL AFTER DEAL

• EXAMPLES:1)L&T + KOMATSU

2)SALEEN + FORD

Absorption

Acquired company

conforms to

acquirer-

Cultural

Assimilation.

Transformation

Both the companies

find new ways of

operation- Cultural

transformation.

Best of Both

Additive from both

sides- cultural

integration.

Preservation

Acquired company

retains its

independence-

Cultural autonomy.

Reverse merger

Unusual case of

acquired company

dictating terms-

cultural assimilation

HIGH

HIGH

LOW

LOWDegree of change in

acquiring company

Deg

ree

of

chan

ge

in

acq

uir

ing c

om

pan

y

COMPOSITION OF NEW BOARD

WHO WILL OCCUPY WHICH JOB?

ASSESSING CULTURE

UNDERTAKING A HUMAN CAPITAL AUDIT AND

SELECTING THE MANAGEMENT TEAM

EFFECTIVE COMMUNICATION

RETAINING TALENT

CREATING THE NEW CULTURE

ALIGNING PERFORMANCE EVALUATION

AND REWARD SYSTEM

MANAGING THE TRANSITION

INTEGRATION