merger & aquisitions ppt.


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merger & aquisitions ppt.

  1. 1. TOPIC NAME Mergers and Acquisitions  STUDENT’S NAME :  Vijaykumar Nishad – 23  Ashwini Jagtap – 13  Mahendra Jain – 15  Aamir Kapoor – 17  Nozer Khan – 19 Ch7
  2. 2. The Strategic Management Process External Analysis Mission Strategic Choice Objectives Strategy Implementation Competitive Advantage Which Businesses to Enter? Internal Analysis Corporate Level Strategy • Vertical Integration • Diversification Mode of Entry? • Strategic Alliances • Mergers & Acquisitions Ch7
  3. 3. Mergers and Acquisitions Merger A transaction where two firms agree to integrate their operations on a relatively coequal basis because they have resources and capabilities that together may create a stronger competitive advantage Acquisition A transaction where one firm buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of businesses Takeover An acquisition where the target firm did not solicit the bid of the acquiring firm Ch7
  4. 4. Mergers & Acquisitions Defined • Parent stocks are usually retired and new stock issued • Name may be one of the parents’ or a combination • One of the parents usually emerges as the dominant management • Can be a controlling share, a majority, or all of the target firm’s stock • Can be friendly or hostile • Usually done through a tender offer Ch7
  5. 5. Advantages of Mergers & Acquisitions  1- Merger is legally simple and does not cost much .  2- A merger does not require cash.  3- A merger allows the shareholders of smaller entities to own a smaller piece of a larger pie, increasing their overall net worth.  4- A merger allows the acquirer to avoid many of the costly and time-consuming aspects of asset purchases.  5- Reducing your costs , overheads and competition. Ch7
  6. 6. Disadvantages of Mergers & Acquisitions  1- merger must be approved by a vote of the stockholders of each firm .  2-obtaining the necessary votes can be timeconsuming and difficult .  3- M&A activity is a relatively high risk of failure.  4- Diseconomies of scale if business becomes too large, which leads to higher unit costs. Ch7
  7. 7. Types 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. 8. Types of Acquisitions  Friendly - Management of both the companies agree mutually for takeover.  Hostile  An aggressive firm tries to acquire the firm against the latter’s desire.  Linked with poor management and performance.  In cases where chances of making profits exceed the cost of takeover considerably.  Promoters with less than 50% stake. Ch7
  9. 9. Problems in Achieving Success Reasons for Acquisitions Increased market power Integration difficulties Overcome entry barriers Inadequate evaluation of target Cost of new product development Large or extraordinary debt Increased speed to market Acquisitions Inability to achieve synergy Lower risk compared to developing new products Too much diversification Increased diversification Managers overly focused on acquisitions Avoid excessive competition Too large Ch7
  10. 10. Reasons for Acquisitions Increased Market Power Acquisition intended to reduce the competitive balance of the industry Example: British Petroleum’s acquisition of U.S. Amoco Overcome Barriers to Entry Acquisitions overcome costly barriers to entry which may make “start-ups” economically unattractive Example: Belgian-Dutch Fortis’ acquisition of American Banker’s Insurance Group Lower Cost and Risk of New Product Development Buying established businesses reduces risk of start-up ventures Example: Watson Pharmaceuticals’ acquisition of TheraTech Ch7-
  11. 11. Reasons for Acquisitions Increased Speed to Market Closely related to Barriers to Entry, allows market entry in a more timely fashion Example: Kraft Food’s acquisition of Boca Burger Diversification Quick way to move into businesses when firm currently lacks experience and depth in industry Example: CNET’s acquisition of mySimon Reshaping Competitive Scope Firms may use acquisitions to restrict its dependence on a single or a few products or markets Example: General Electric’s acquisition of NBC Ch7-
  12. 12. Problems with Acquisitions Integration Difficulties Differing financial and control systems can make integration of firms difficult Example: Intel’s acquisition of DEC’s semiconductor division Inadequate Evaluation of Target “Winners Curse” bid causes acquirer to overpay for firm Example: Marks and Spencer’s acquisition of Brooks Brothers Large or Extraordinary Debt Costly debt can create onerous burden on cash outflows Example: AgriBioTech’s acquisition of dozens of small seed firms Ch7-
  13. 13. Problems with Acquisitions Inability to Achieve Synergy Justifying acquisitions can increase estimate of expected benefits Example: Quaker Oats and Snapple Overly Diversified Acquirer doesn’t have expertise required to manage unrelated businesses Example: GE--prior to selling businesses and refocusing Managers Overly Focused on Acquisitions Managers may fail to objectively assess the value of outcomes achieved through the firm’s acquisition strategy Example: Ford and Jaguar Too Large Large bureaucracy reduces innovation and flexibility Ch7-
  14. 14. Ch7-