This presentation is made possible by the support of the American People through the United States Agency
for International Development (USAID). The contents of this presentation are the sole responsibility of Rick
Rasmussen and do not necessarily reflect the views of USAID or the United States Government.
Crafting a successful merger
• Merger: One corporation is combined with and
disappears into another corporation
– Statutory Merger: done under the law
• Corporate Acquisition: The process by which the stock or
assets of a corporation come to be owned by a buyer.
Can be a purchase of stock or a purchase of assets.
• Acquisition is the generic term. A merger is the narrow
technical term for the legal procedure
Why corporations are looking for acquisitions
• Vertical Integration
• New market entry
• Strategic alliance
• Customer acquisition
• Reduce potential
Potential Exit paths
• Porter model
• Strategic model used to achieve
economies in purchasing, sales and/
• Vertical backward integration:
– Buying a supplier
• Vertical forward integration:
– Buying current or potential customers
• Danger – loosing leverage or
relationships with your other suppliers
• Product (or service) extension:
– Adding a product or service to be sold in the same
geography, generally to the same customers
– Example: water company buys a company that sells sodas
• Geographic diversification:
– Merging with a company in a similar business in a different
• Danger: entry into a field of activity and a geographic
area where the acquirer has no present operations
• Valuation is an absolute art.
• How much is a company worth?
– As much as someone is willing to pay!
• Should be based on operations and future value, not assets and
risk factors come into play
• Different objective methods can be applied in order to validate
– Replacement Value
– Investment or Average Rate of Return
– Internal Rate of Return (IRR)
– Market Value
– Comparable Net Worth to Market Value
– Discounted Cash Flow
Corporate Control Takeover Mechanisms
• Friendly mergers
– Both firms agree that combining them would be value creating.
– There may be an exchange of stock or one firm may make a tender offer for the other
– Friendly mergers and takeovers account for most of the transaction volume that
• Hostile takeovers.
– Occur when there is conflict between the acquirers and acquirees over the price that
should be paid, the effectiveness of the policies that will be implemented and so forth.
– Hostile tender offers allow the acquirers to go over the heads of the target
management and appeal directly to their shareholders.
– This mechanism is potentially very important in ensuring an efficient allocation of
• Proxy contests
– A group of shareholders trying to persuade the remaining shareholders to unseat the
existing board of directors.
– Used to change a firm's policies, to have her and others with similar views voted onto
the board of directors at a shareholders meeting. Group solicits proxies from other
shareholders which allows group to vote other’s shares.
– Difficult to win because holdings are often spread among many individuals and groups.
– Vested with “earn-out” milestones
• Stock transactions are more easily financed vs. cash
– Debt and lease obligations
– Sale of assets
– Company break up, partitioning, and resale
– Seller Take back Financing
• Covers Due Diligence concerns
• Representations and Warranties
– actions to be done and actions prohibited
• Conditions to Closing
• Indemnity (protections)
• Termination Procedures
• Employment Agreements
• Stockholder Agreements
Steps to an acquistion
• Planning and Finding
• Valuation and Pricing
• Financing or Refinancing
• Structuring the Transaction
• A Letter of Intent
• Due Diligence
• Negotiate an Acquisition Agreement
• Closing and transfers
• Post-merger integration
Post Merger Integration
(This is where mergers succeed or fail)
• Having a Plan is key
• Plan development
• Outsiders may have a role
• Communicating to employees
• Integrating Human Resources
• Integrating Assets
• Financial restructuring
• Management and personal issues
• Who becomes:
– President, CEO, Chairman?
• Stand-alone division or subsumed into acquirer
• Eliminating redundancies – “synergies”
– You don’t need two:
• Finance departments
• Facilities groups
• QA departments
• HR Departments
• Value of brands
• Product line-by-product line
Congratulations on your merger!
May everything go as well as planned…