This document discusses mergers and acquisitions. It defines mergers and acquisitions, provides examples of each, and discusses the different types including horizontal, vertical, conglomerate, and cross-border mergers and acquisitions. It also outlines the main methods of payment in mergers and acquisitions including cash, security, and leveraged buyouts. Finally, it summarizes the typical steps involved in merger transactions including planning, obtaining resolutions, and implementation.

2. Maica Jimena Batiancela
BSBA Financial Management
Saint Louise de Marillac College of Sorsogon

3. Mergers And Acquisitions
• A general term used to refer to the consolidation of
companies. A merger is a combination of two
companies to form a new company, while an acquisition
is the purchase of one company by another in which no
new company is formed.
• An example of a major merger is the merging of JDS
Fitel Inc. and Uniphase Corp. in 1999 to form JDS
Uniphase. An example of a major acquisition is
Manulife Financial Corporation's 2004 acquisition of
John Hancock Financial Services Inc.

4. Amalgations
• Amalgamation is an arrangement where two or more
companies consolidate their business to form a new firm, or
become a subsidiary of any one of the company.
• For practical purposes, the terms amalgamation and merger
are used interchangeably. However, there is a slight
difference. Merger involves the fusion of two or more
companies into a single company where the identity of some
of the companies gets dissolved. On the other
hand, amalgamation involves dissolving the entities of
amalgamating companies and forming a new company

5. Types of Amalgations
•The first one is similar to a merger where all the
assets and liabilities and shareholders of the
amalgamating companies are combined together.
The accounting treatment is done using the
pooling of interests method.
•It involves laying down a standard accounting
policy for all the companies and then adding their
relevant accounting figures like capital
reserve, machinery, etc. to arrive at revised

6. Types of Amalgations
• The second type of amalgamation involves acquisition
of one company by another company.
• In this, the shareholders of the acquired company may
not have the same equity rights as earlier, or the
business of the acquired company may be discontinued.
This is like a purchase of a business. The accounting
treatment is done using a purchase method. It involves
recording assets and liabilities at their existing values or
revaluating them on the basis of their fair values at the
time of amalgamation.

7. Takeovers
•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.

8. Methods of Takeover
•Friendly Takeover
•Hostile Takeover

9. Friendly Takeover
•Friendly takeovers can involve either the acquisition of the
assets of the company or the purchase of the stock of the
target.
•There are several advantages associated with the purchase
of assets.
• First, the acquiring firm can purchase only those assets that it
desires.
• Second, the buyer avoids the assumption of any contingent
liabilities of the target.

10. Friendly Takeover
•The second type of friendly takeover involves the
purchase of the stock of the target.
•In this instance, the acquiring firm does assume
the liabilities of the target firm. The target firm
continues to operate as an autonomous subsidiary
or it may be merged into the operations of the
acquiring firm. The approval of the target's
shareholders is necessary for this type of
acquisition.

11. Hostile Takeovers
•Hostile takeovers occur when the board of
directors of the target is opposed to the sale
of the company.
•In this instance, the acquiring firm has two
options if it chooses to proceed with the
acquisition:
•a tender offer or
•a proxy fight.

12. Tender Offer
•A tender offer represents an offer to buy the stock of the
target firm either directly from the firm's shareholders or
through the secondary market.
•This method tends to be an expensive way of acquiring
the stock since the share price is bid up in anticipation of
a takeover.
•Often, acquiring firms will first propose an offer to buy
the company's stock to the target company's board of
directors, with an indication that if the offer is turned

13. Proxy Fight
•In a proxy fight, the acquirer solicits the shareholders of
the target firm in an attempt to obtain the right to vote
their shares.
• The acquiring firm hopes to secure enough proxies to
gain control of the board of directors and, in turn, replace
the incumbent management.
• Proxy fights are expensive and difficult to win, since the
incumbent management team can use the target firm's

14. Categories of Mergers and Acquisitions
•Horizontal
A merger in which two firms in the
same industry combine.
Often in an attempt to achieve
economies of scale and/or scope.

15. Categories Of Mergers And
Acquisitions
•Vertical
A merger in which one firm acquires a
supplier or another firm that is closer to its
existing customers.
Often in an attempt to control supply or
distribution channels.

16. Categories Of Mergers And
Acquisitions
•Conglomerate
A merger in which two firms in
unrelated businesses combine.
Purpose is often to „diversify‟ the
company by combining uncorrelated
assets and income streams

17. Categories Of Mergers And
Acquisitions
•Cross-border (International)
M&As
A merger or acquisition involving a
Canadian and a foreign firm a either
the acquiring or target company.

18. Methods Of Payment In Mergers And
Acquisitions
• Cash Payment
•A simple purchasing action which means the
purchasing corporation purchases a certain
amount of assets or stocks from the target
company by paying a certain amount of cash. It
is the most popular payment method with
mergers and acquisitions on Chinese capital
markets.

19. Methods OF Payment in Mergers and
Acquisitions
•Security Payment
•The purchasing company issue new securities in order to
buy the stocks or assets of the target company. It includes 2
forms:
• Stock payment – the purchasing company issues new stocks to buy
the stocks or assets of the target company. The most popular form of
is stock exchange which means the purchasing company directly to
the target company to buy out the stocks or assists of the target
company.
• Bond payment – The purchasing company issues new corporate bonds
to buy out the stocks or assets of target company. As a payment

20. Methods Of Payment In Mergers
And Acquisitions
• Leveraged Buyout (LOB)
•The purchasing company finance capitals with
mergers and acquisitions through increasing
debts. Under leveraged buyout, the purchasing
company take the assets or future operating
cash flows of target company as pledges in
order to raise debts to finance capitals from
investors and then purchase the stocks and
ownership of target company with cash

21. Steps In Merger Transactions
1.Planning
The most complex part of the merger
process, entails the analysis, the action
plan, and the negotiations between the parties
involved. The planning stage may last any
length of time, but once it is complete, the
merger process is well on the way.

22. Steps In Merger Transactions
Planning stage also includes:
signing of the letter of intent which starts off the negotiations;
the appointing of advisors who play the role of consultants,
examining the strengths, weaknesses, opportunities, and
threats of the merger;
detailing the timetable (deadline), conditions (share exchange
ratio), and type of transaction(merger by integration or through
the formation of a new company);
expert report on the consistency of the share exchange ratio,
for all of the companies involved.

23. Steps In Merger Transactions
2. The resolution
The management's approval
first, then by the shareholders
involved in the merger plan.

24. Steps In Merger Transactions
The resolution stage also includes:
 The Board of Directors calling an extraordinary shareholders‟
meeting whose item on the agenda is the merger proposal;
The extraordinary shareholders‟ meeting being called to pass a
resolution on the item on the agenda;
Any opposition to the merger by creditors and bondholders
within 60 days of the resolution;
Green light from the Italian Antitrust Authority, that evaluates the
impact of the merger and imposes any obligations as a
prerequisite for approving the merger.

25. Steps In Merger Transactions
3. Implementation
The final stage of the merger process, including enrolment
of the merger deed in the Company Register.
Normally medium-sized/big mergers require one year
from the start-up of negotiations to the closing of the
transaction. This is because, in addition to the time needed
technically, there are problems relating to the share
exchange ratio between the merging companies which is
rarely accepted by the parties without drawn-out

26. Steps In Merger Transactions
During the merger process, share prices
will adjust to the share exchange ratio. On
the effective date of the merger, financial
intermediaries will enter the new shares with
the new quantities in the dossiers. The
shareholders may trade without constraint
the new shares and benefit from all rights
(dividends, voting rights).

27. Reverse Mergers
• A reverse merger is an alternative to a traditional initial public
offering (IPO) for a company desiring to have its stock become
publicly traded. In a reverse merger, the owners of a private company
acquire control of a dormant public one, called a “shell,” and
complete a business combination with it. When the merger is
complete, the private company becomes public and its stock can be
publicly traded in its own right. Reverse mergers are also used when
a larger private company wishes to combine with a smaller publicly
held operating business.

28. Public Shell
A “public shell” or “shell company” is a public
company that has no or nominal assets (other than
cash) and minimal, if any, day-to-day business
operations. It may be the remnant of a bankrupt or
sold organization or specially formed for the
purpose of combining with a private company.

29. Steps in Reverse Merger
1. Find a shell company. There are hundreds
of dormant public companies available. You
can also ask corporate law
firms, accountants, or financial consultants.
2. Develop a financial strategy for raising
additional capital contemporaneous with or
after the deal.

30. Steps in Reverse Merger
3. Hire a law firm and accounting firm. There are a
myriad of SEC rules, forms to fill out, legal
documents, confusing numbers, and steps you will
need help with.
4. Complete the transaction and trade shares.
Shares of the private company are traded for shares
of the public company and typically the private
company continues its existence as a wholly
owned subsidiary of the former shell.

31. Defensive Strategies In Hostile Take
Over
•Shareholders Rights Plan
Known as a poison pill or deal killer
Can take different forms but often
Gives non-acquiring shareholders get the
right to buy 50 percent more shares at a
discount price in the event of a takeover.

32. Defensive Strategies In Hostile
Take Over
•Selling the Crown Jewels
The selling of a target company‟s key
assets that the acquiring company is most
interested in to make it less attractive for
takeover.
Can involve a large dividend to remove
excess cash from the target‟s balance
sheet.

33. Defensive Strategies In Hostile
Take Over
•White Knight
The target seeks out another acquirer
considered friendly to make a counter
offer and thereby rescue the target
from a hostile takeover