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- 1. McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 1-1 Introduction to Mergers and Acquisitions (M&A) Lecture 2
- 2. Business Combination • Why business combine? Combi nation Synergy Growth Diversification Eliminate competition
- 3. Business Combination • competition reduction • leveraging management resources • capital cost reduction • financial flexibility • tax advantages • risk reduction • economies of scale • economies of scope • know-how transferring • utilization maximizing Operatin g Synergy Financial Synergy Market power Synergy Corporat e Manage ment Synergy Synergy
- 7. Merger When two or more companies combines into one company May merge with existing companies Form new company In Vietnam merger is call “sap nhap” MERGE R
- 9. Merger Merger through Absorption An Absorption is Combination of two or more companies into an existing company All companies except one lose their identity Example: + =
- 10. Merger Merger through Consolidation An Consolidation is Combination of two or more companies into a new company All companies are dissolved to form a New Company Example: Hatien 1 + Hatien 2 = Vicem Hatien
- 11. Mergers & Acquisitions In Vietnam, there are many legal normative documents with regard to M&A such as: • Law on Enterprises, • Competitive law, • Investment law and • Civil law.
- 12. Mergers & Acquisitions • Using these laws as references, the definition of M&A is stated as follows: • one or several enterprises transfer all of its/their properties, rights, obligations and legitimate interests to another enterprise and at the same time terminate the existence of the merged enterprise(s) Merger • two or more enterprises transfer all of their properties, rights, obligations and legitimate interests to form a new enterprise and, at the same time, terminate the existence of the consolidated enterprises Consolidation • an enterprise acquires the whole or part of property of another enterprise sufficient to control or dominate all or one of the trades of the acquired enterprise Acquisition
- 13. Merger Types of Merger Horizontal Merger Vertical Merger Market extension Merger Product extension Merger Conglomeration
- 14. Types of Merger Horizontal Merger • Horizontal transaction occurs between two firms operating in the same industry with an aim to gain synergies and enhance the market power by combining resources • Example: TH True Milk and Dalat Milk
- 15. Types of Merger Vertical Merger • Vertical transaction involves consolidating firms at different level of production and operation reduce the risk and transaction costs in forward or backward production chain, typically the relationship between suppliers and producers • Example: A rubber company merges with a tire production company
- 16. Types of Merger Market extension Merger • This involves the combination of two companies that sell the same products in different markets • A market extension merger allows for the market that can be reached to become larger and is the basis for the name of the merger • Example: Hatien 1 and Hatien 2
- 17. Types of Merger Product extension Merger • This happens between two companies dealing with products that are related to each other and operate in the same market • Companies which sell different products of a related category • Example: Kinhdo and Wall VS
- 18. Types of Merger Conglomeration • Conglomerate transaction involves firms operating in unrelated industry which seek to get advantages from economies of scope and risk diversification • Example: +
- 19. Acquisition • An Acquisition may be an act of acquiring effective control by one company over assets or management of another company without any combination of companies • Companies may remain independent and separate but there may be change in control of companies • Example: Hung Vuong Corp. acquires An Giang Corp.
- 20. ACQUISITION
- 21. Takeover • A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares Friendly takeover Hostile takeover Types of Takeover
- 22. Takeover might be : Hostile Takeover A takeover attempt that is strongly resisted by the target firm Friendly Takeover Target company's management and board of directors agree to a merger or acquisition by another company
- 23. Why should firm takeover? To gain opportunities of market growth To seek gain benefits from economies of scale To gain a more dominant position in the market To acquire the skills or strengths of another firm to complement existing business To diversify its product or service range in the market
- 24. Consideration: Alternative Deals to M&A Joint Venture Unite business units Problem with shared ownership New product lines Cost reductions Share risk, share cost in new markets, R&D Buy-out clause Alliances Reduce non-core or commoditizing parts Outsourcing, Offshoring Help supplier gain scale Enter complementary business www.myCNI.com.my www.OOBEY.com
- 25. McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 1-25 Mergers and Acquisitions Process
- 27. Pfizer & Allergan : A Failed M&A Deal
- 28. #1 Largest Pharma Company Pfizer_56% ownership + Allergan_44% ownership = $160bn M&A deal
- 29. Reason: Government regulation Under new U.S. Treasury rule, the size of the foreign acquirer ignores three-year assets of past mergers with U.S. firms This means the size of Allergan will be decreased due to former M&A with U.S. companies. As a result, Allergan’s ownership will be lower 40% and no tax inversion The merger is no longer attractive Termination Why the deal collapse?
- 30. VietinBank Bank of Nova Scotia Vietnam Joint Stock Commercial Bank for Industry and Trade The Bank of Nova Scotia (Canada) 4th largest State-owned commercial banks of Vietnam Assets account for over 20 percent of the market share Business lines: • Personal & Commercial Banking • Asset Management • Fund Management • Insurance • Securities 3rd largest Multinational bank in Canada by deposits and market cap Serves 23 mil customers in over 55 countries Business lines: • Personal & Commercial Banking • Wealth Management • Corporate and Investment Banking
- 31. Initial Conditions Same industry category – bank Share some characteristics and business functions in common Full potential Case As planned, VietinBank would issue 357 million shares to Bank of Nova Scotia i.e., a 15% of its stake, at VND22,000 per share However, the deal wasn’t carried out.
- 32. Canadian bank requested to receive all dividends and capital surplus in 2011 Real value of VietinBank’s share would be reduced by about VND3,000 -> only VND 19,000 VietinBank sold 10% stakes to IFC Corp., at VND 21,000 per share Price of VND 22,000 was not even the price that VietinBank really desired VietinBank certainly couldn’t accept the deal at such a price. 1 2 3
- 33. McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 1-33