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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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Ch7-