...within the business world. In today's global, competitive environment, mergers are sometimes the only means for long-term survival. In other cases, such as Cisco Systems, mergers are a strategic component for generating long-term growth. Additionally, many entrepreneurs no longer build companies for the long-term; they build companies for the short-term, hoping to sell the company for huge profits. In her book The Art of Merger and Acquisition Integration, Alexandra Reed Lajoux puts it best: Virtually every major company in the United States today has experienced a major acquisition at some point in history. And at any given time, thousands of these companies are adjusting to post-merger reality. For example, so far in the decade of the 1990's (through June 1997), 96,020 companies have come under new ownership worldwide in deals worth a total of $ 3.9 trillion - and that's just counting acquisitions valued at $ 5 million and over. Add to this the many smaller companies and nonprofit and governmental entities that experience mergers every year, and the M & A universe becomes large indeed. M & A Defined When we use the term "merger", we are referring to the merging of two companies where one new company will continue to...
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...follows: In General, "Merger is an absorption of one or more companies by a single existing company." In Finance, "Merger is an act or process of purchasing equity shares (ownership shares) of one or more companies by a single existing company." * The combination of one or more corporations, LLCs, or other business entities into a single business entity; the joining of two or more companies to achieve greater efficiencies of scale and productivity. * The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. MEANING OF MERGER Before we understand, What is Merger? First, let's find out the simple meaning of an acquiring company and acquired companies. Acquiring company is a single existing company that purchases the majority of equity shares of one or more companies. Acquired companies are those companies that surrender the majority of their equity shares to an acquiring company. Merger is a technique of business growth. It is not treated as a business combination. Merger is done on a permanent basis. Generally, it is done between two companies. However, it can also be done among more than two companies. During merger, an acquiring company and acquired companies come together to decide and execute a merger agreement between them. After merger, acquiring company survives whereas acquired companies do not survive anymore, and they cease (stop) to exist...
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...in the process has a clear understanding of how the process works. Hopefully this short course will provide you with a better appreciation of what is involved. You might be asking yourself, why do I need to learn the merger and acquisition (M & A) process? Well for starters, mergers and acquisitions are now a normal way of life within the business world. In today's global, competitive environment, mergers are sometimes the only means for long-term survival. In other cases, such as Cisco Systems, mergers are a strategic component for generating long-term growth. Additionally, many entrepreneurs no longer build companies for the long-term; they build companies for the short-term, hoping to sell the company for huge profits. In her book The Art of Merger and Acquisition Integration, Alexandra Reed Lajoux puts it best: Virtually every major company in the United States today has experienced a major acquisition at some point in history. And at any given time, thousands of these...
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...equal to 1.7 times the change in market capitalization value of HP at the announcement. The announcement was not taken very positively by HP shareholders and the decline in stock price resulted in a 4.2 Billion decrease in market value of HP.On the other hand, stock price of Autonomy went up by 72%.The whole deal meant that HP had to suffer a loss of almost 8.2 Billion on acquiring Autonomy. When a firm acquires another entity, there usually is a predictable short-term effect on the stock price of both companies. In general, the acquiring company's stock will fall while the target company's stock will rise. The reason the target company's stock usually goes up is that the acquiring company typically has to pay a premium for the acquisition: unless the acquiring company offers more per share than the current price of the target company's stock, there is little incentive for the current owners of the target to sell their shares to the takeover company. The acquiring company's stock usually goes down for a number of reasons. First, as we mentioned above, the acquiring company must pay more than the target company currently is worth to make the deal go through. Beyond that, there are often a number of uncertainties involved with acquisitions. iii) Was the acquisition a wise investment? What is your best estimate of the fair price that HP should have paid for Autonomy? Can you see a situation where a firm might benefit by paying a premium to acquire another firm? Ans) No, this...
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...account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company is purchased by another company. In an acquisition, the amount paid for the company over book value usually accounts for the target firm's intangible assets. Investopedia explains 'Goodwill' Goodwill is seen as an intangible asset on the balance sheet because it is not a physical asset such as buildings and equipment. Goodwill typically reflects the value of intangible assets such as a strong brand name, good customer relations, good employee relations and any patents or proprietary technology. Definition of 'Negative Goodwill' A gain occurring when the price paid for an acquisition is less than the fair value of its net tangible assets. Negative goodwill implies a bargain purchase. Negative goodwill may be listed as a separate line item on the acquiring company's balance sheet and may be considered income. For the purchased company, negative goodwill often indicates a distress sale, and the unfavorable sale conditions lead to a depressed sale price. Investopedia explains 'Negative Goodwill' Negative goodwill is based on the concept of goodwill, an intangible asset that represents the worth of a company's brand name, patents, customer base and other items that are difficult to price but that help to make a company valuable. Most of the time, a company will be purchased for more than the value of its tangible assets, and the difference is attributed to goodwill...
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...Elias Group company was found by Ms. Elias; who had retired as the Deputy Administrator for the General Services Administration. Today the Elias Group has thirty-one full time staff and a network of over 100 specialized consultants that provide business owners with several of services such as: Preparing a firm to qualify for the GSA schedules, assisting in the appropriate response to a government request for either goods or services, assisting in providing an analysis of business operations and operating policies to assure appropriate regulatory compliance, assisting lobbying efforts for industry specific assistance and or legislation that we deem appropriate for the consumer, industry and government. On top of all these services the Elias Group also provides grants and professional research. Just like any other business the goal is to increase profit and expand. The Elias Group is considering in expanding but as good business managers they have to consider several of factors including the benefits and disadvantages of going public through an IOP, acquiring another organization or merging. Taking a company public through the Initial Public Offering (IPO) requires several of steps followed by the advantages and disadvantages one must considered. Initial Public Offering requires a company to turn its company into a corporation. Create some good publicity for the company, have financial records ready, hire a corporate attorney and file a registration statement. When acquiring another...
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...Acquisitions: Break Ups 6) Mergers and Acquisitions: Why They Can Fail 7) Mergers and Acquisitions: Conclusion Introduction Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Every day, Wall Street investment bankers arrange M&A transactions, which bring separate companies together to form larger ones. When they're not creating big companies from smaller ones, corporate finance deals do the reverse and break up companies through spinoffs, carve-outs or tracking stocks. Not surprisingly, these actions often make the news. Deals can be worth hundreds of millions, or even billions, of dollars. They can dictate the fortunes of the companies involved for years to come. For a CEO, leading an M&A can represent the highlight of a whole career. And it is no wonder we hear about so many of these transactions; they happen all the time. Next time you flip open the newspaper’s business section, odds are good that at least one headline will announce some kind of M&A transaction. Sure, M&A deals grab headlines, but what does this all mean to investors? To answer this question, this tutorial discusses the forces that drive companies to buy or merge with others, or to split-off or sell parts of their own businesses. Once you know the different ways in which these deals are executed, you'll have (Page 1 of 15) Copyright © 2010, Investopedia.com - All rights reserved....
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...firm merging with another firm to create a new firm to managers of a firm acquiring the firm from its stockholders and creating a private firm. We begin this section by looking at the different forms taken by takeovers. 1. TAKEOVER A corporate action where an acquiring company makes a bid for an acquire. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares. There are three types of takeovers: 1.1 Friendly takeovers A "friendly takeover" is an acquisition which is approved by the management. Before a bidder makes an offer for another company, it usually first informs the company's board of directors. In an ideal world, if the board feels that accepting the offer serves the shareholders better than rejecting it, it recommends the offer be accepted by the shareholders. 1.2 Hostile takeovers A "hostile takeover" allows a suitor to take over a target company whose management is unwilling to agree to a merger or takeover. A takeover is considered "hostile" if the target company's board rejects the offer, but the bidder continues to pursue it, or the bidder makes the offer directly after having announced its firm intention to make an offer. A hostile takeover can be conducted in several ways. A tender offer can be made where the acquiring company makes a public offer at a fixed price above the current market price. An acquiring company can also engage in a proxy fight, whereby it tries to persuade enough shareholders...
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...House of Tata – Acquiring a Global Footprint Group 1 Bhuvan Bajaj Karan Bahl Raki Jain Trivikram Apte Vinayak Pareek Yan Yan Huang House of Tata – Acquiring a Global Footprint Executive Summary What and how did TATA emerge as a Multi Brand? Founded in 1868 by Jamshetji N. Tata as a trading firm Textiles in 1874 India’s first luxury hotel in 1903 First private steel company in 1907 First airline in 1932 First software firm in 1968 Liberalization of the Indian Economy and the changes that it brought to TATA’s way of doing business Ratan Tata becomes chairperson in 1991 • • First objective: Streamline group portfolio Some groups diversified and others organized around seven sectors 2 Major global expansions In 2000, Tata groups started internationalized operations and 65% of collective revenues were expected to come from outside India 1. Tata Consultancy ServicesWhy TCS, the group’s tech and consulting giant underwent its evolution at a much faster rate than the other Tata companies, in a sense became more global. And they perceived more growth in the foreign market and had to expand globally, TCS accounted for $27.8 billion of Tata’s $59.5 billion market capitalization as of August 2007 2. TitanExpanded globally but suffered high losses thus established itself as an NRI brand, especially in the Middle East. 3. Indian Hotels Company – TAJ Hotel Group Began globalization in 1982, Tata purchased 51 Buckingham gate and St. James court hotel which was later branded as...
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...are many factors of strength that can be found in a company who’s going public, as well as the company understands that with going public, their real capital can be created. This capital can allow more money to go towards research and development, pay for current capital expenditures, or even help pay off existing debts (Investopedia, 2009). When an organization is publicly traded, this means that the public can notice a company on a much larger scale, than they would have in the past. There now is future potential of investors finding out of a company’s growing successes where they might not have heard of before as with the numbers being public, the success of the company also is shared (Investopedia, 2009). Another potential strength of going public is that of entrepreneurs if looking for a way out, or merely a way to cash out on a successful growing company, it’s a way to gain on that success. (Investopedia, 2009) <-THIS NEEDS MORE SENTENCES Although there is much strength to going public through an IPO, there are also many weaknesses. As we choose to go public we will have to consider the challenges of fully disclosing our company information for investors and publishing our financial records to be in accordance with Securities Exchange Act of 1934. In addition, we need to consider the added cost of complying with additional government regulations as stated in (Investopedia, 2009) it states, “Public companies are regulated by the Securities Exchange Act of 1934 in...
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...into attainment of the desired synergy. In most cases, acquisitions are characterized by a 50-50 probability of succeeding. In the event of financial instability, the probability of attaining the desired synergy is limited. Upon conducting a financial analysis of the firm’s financial statements, it was evident that the firm was facing a serious financial instability. Firstly, the share price of the company was relatively low. This means that the acquisition would not lead into value addition through improvement in the share price of the acquiring company. In this case, the Chief Executive Officer (CEO) of Riordan Company intends to improve the price of the firm’s share through the acquisition. However, this can only be achieved if the firm is operating at a profit. Entering into acquisition means that the profitability of the firm will be negatively affected. This will limit the manager’s objective of maximizing the shareholders’ wealth. The shareholders objective is to maximize the value of their investment (Hitt, Ireland & Hoskisson, 2009, p. 189). Therefore, the acquiring...
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...October 2005 2 The Value of Synergy Many acquisitions and some large strategic investments are often justified with the argument that they will create synergy. In this paper, we consider the various sources of synergy and categorize them into operating and financial synergies. We then examine how best to value synergy in any investment and how sensitive this value is to different assumptions. We also look at how this synergy value should be divided between the parties (or companies) involved in the investment. We conclude with an empirical examination of how much synergy is actually created in corporate mergers, and how much is paid. Synergy, we conclude, is so seldom delivered in acquisitions because it is incorrectly valued, inadequately planned for and much more difficult to create in practice than it is to compute on paper. 3 When Carly Fiorina argued for Hewlett-Packard’s acquisition of Compaq, she offered a number of of reasons the deal made sense. She noted that the combined company would be able to meet the demands of customers for “solutions capability on a truly global basis.” She also claimed that the firm would be able to lead with its products “from top to bottom, from low end to high end.” As her crowning argument, she claimed that the merger made sense because it would create “synergies that are compelling.” Synergy, the increase in value that is generated by combining two entities to create a new and more valuable entity, is the magic ingredient that...
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...JOURNAL: Procedia Social and Behavioural Sciences 2 pg 6896-6905 PUBLISHED YEAR: 2010 INTRODUCTION The rapid economic growth of China since the past thirty years as enabled large numbers of Chinese enterprises to grow and gain competiveness. One of their sources of growth is through international expansion which is achieve by acquiring existing businesses abroad which is known as cross-border mergers and acquisitions (M&A). Cross –border mergers and acquisitions by Chinese firms has increased steadily up to US$ 8.139 billion between 1988 to 2003 with $216 million averagely each year, most of which occurred after 1997. Some of the Chinese enterprises that involve in cross- border M&A are Shanghai Electric Group which purchased Japanese printing machine manufacturer in 2002, TCL acquiring Schneider in Germany in 2003 and Lenovo purchased PC business of IBM in 2004. KEY WORDS Cross- border – is an activity that took place between country to country Mergers and Acquisitions (M&A) - is an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture. Chinese enterprises – firms that are based or owned by Chinese Internationalization- this means globally recognized and expansion...
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...Do Bank Mergers Create Shareholder Value? An Event Study Analysis Varini Sharma Introduction to Econometrics December 17, 2009 Professor Gary Krueger Macalester College I. Introduction Since the 1980s, the U.S. banking industry has experienced a large increase in the level of mergers and acquisitions. Between 1980 and 1998, approximately 8,000 bank mergers occurred, involving about $2.4 trillion in acquired assets that can be attributed to deregulation in the1980s and the removal of legal restrictions on intrastate and interstate banking (Rhoades, 2000). One basis for these mergers is the assumption that such consolidations lead to improvements in efficiency and profits amassed through increased market power, economies of scale, reduced earnings volatility, diversification, and other financial and operational synergies. While proponents of bank mergers argue that these gains are substantial, Coase (1937) tells us that tradeoffs exist between economies of scale (size) and ability to manage. In addition to the significant increase in mergers we have witnessed the collapse of countless financial institutions in the past 3 years due to bad lending practices. While the Coase theory applies to firms in general, how well does it apply to financial institutions? Additionally, has the increased size of financial institutions contributed to the financial crisis of 2008? This paper investigates the economic role of bank mergers in creating shareholder...
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...paper, Team C will discuss Huffman Trucking Company and recommend a strategy that is best for this company and what will benefit the company the most. It will discuss the strategies such as undertaking IPOs, merging with other companies and ways to get other companies, as a way to help their company to branch out. Some of the other things that will be discussed are the benefits and risks, the advantages and disadvantages of all the approaches that should be taken into consideration for what is the best way to strategy for the business, the strengths and weaknesses of each approach, and the opportunities that each one has to give. Finally, the last thing discussed is the globalization on financial decisions, factors of the exchange rate risks, and the mitigation of exchange rate risk. The one thing that Huffman Trucking Company has is strength and they can use this if they decide to go public through the IPO. By doing this Huffman Trucking will be able to raise extra capital for the company. This will then increase the liquidity of the stocks and it will increase the revenue to invest or it could extend the business. This will give the Huffman Trucking Company an opportunity to market the company to the public to extend the company’s service. This strength is to be able to limit their competition. Therefore, this will increase the business’s revenue and this gives them a bigger control, which is why a lot of companies look for other companies within their manufacturing. According to...
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