ACQUISITIONS PRESENTED BY Asian School of Business Management
TAKE OVERS ACQUISITIONS PROXY CONTENT GOING PRIVATE
WHAT IS ACQUISITION AND WHAT IS THE BASIC PRINCIPLE UNDERLYING IT?
An investment made under uncertainty
A firm should be acquired if it generates a positive NPV to the shareholders of the acquiring firm.
ACQUISITIONS MERGER OR CONSOLIDATION ACQUISITION OF STOCK ACQUISITION OF ASSETS
MERGER OR CONSOLIDATION
Acquisition of one firm by another
Acquiring firm retains its name and identity
Acquires all assets and liabilities of the acquired firm
After merger, the acquired firm ceases to exist as a separate legal entity.
Similar to that of Mergers.
Entirely new firm is created.
Both acquiring and acquired firms terminate their previous legal existence
Become a part of new firm.
Legally straight forward
Less costly than other forms of acquisition s
Avoids necessity of transferring title of each individual asset of the acquired firm to the acquiring firm.
Shareholder’s approval is required - Two-thirds of the shares are required for approval
Appraisal rights of the shareholders of acquired firm i.e. they can demand that their shares be purchased at fair value by the acquiring firm.
It results in expensive legal proceedings
ACQUISITION OF STOCK
Purchase the firm’s voting stock in exchange for cash, shares of stock or other securities.
May start as a private offer from the management of one firm to another.
May also start as a direct offer to the selling firm’s stockholders.
May be accomplished by use of a tender offer.
FACTORS INVOLVED IN CHOOSING BETWEEN ACQUISITION OF STOCK AND MERGER
No shareholder meeting is held or vote is required.
Target firm’s BODs can be bypassed and direct transaction can be done with the shareholders using a tender offer.
Acquisition of stock is often unfriendly.
Frequently a minority shareholders will hold out in a tender offer thus the target firm cannot be completely absorbed.
ACQUISITION OF ASSETS
Acquiring another firm by purchasing all its assets.
Formal vote of selling firm is required.
This avoid the potential problem of having minority shareholders.
It involves transferring title to assets.
Legal process of transferring assets is costly.
TYPES OF ACQUISITIONS HORIZONTAL ACQUISITION VERTICAL ACQUISITION CONGLOMERATE ACQUISITION
Acquisition of a firm under the same industry as the acquiring firm.
Eg. Takeover of Raasi cements by India cements)
Involves firms at different steps of the production process
Takeover of some tea plantations by Brooke Bond which is a tea processing and marketing company
Acquisition by the Calcutta based Delta Industries, a jute yarn producing firm, of the Netherlands Jute Industries, a company processing yarn into finished products and marketing jute products in Europe.
Involves companies whose businesses are different.
A part of diversification strategy of a company
Eg. Takeover of Transelectra, Goodknight brands by Godrej.