Chapter 3

Chapter 3
Oxford University Press 2011. All rights reserved.
A strategy where two or more companies agree to combine their operations with mutual consent Buying entity is called the Merged or Surviving Entity and the one merging with it is called Merging Entity. Under merger one company survives and the other loses its corporate existence and the Surviving Entity acquires all the assets and liabilities of the merging company and may either retains its identity or get re-christened. Laws in India use the term 'amalgamation' for merger
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Amalgamation as the merger of one or more companies with another or the merger of two or more companies to form a new company, in such a way that all assets and liabilities of The amalgamating companies become assets and liabilities of the amalgamated company and shareholders not less than nine-tenths in value of the shares in the amalgamating company or companies become shareholders of the amalgamated company
Merger through Absorption: Is a combination of two or more companies into an 'existing company
Here all companies except one lose their identity For Example:
Absorption of Tata Fertilizers Ltd (TFL) by Tata Chemicals Ltd (TCL). TCL, an acquiring company / buyer, survived after merger while TFL, an acquired company / seller, ceased to exist. TFL transferred its assets, liabilities and shares to TCL.
Merger through Consolidation: Is a combination of two or more companies into a 'new company Here all companies are legally dissolved and a new entity is created. Acquired company transfers its assets, liabilities, and shares to the acquiring company for cash or exchange of shares
For Example:
Merger of Hindustan Computers Ltd, Hindustan Instruments Ltd, Indian Software Company Ltd and Indian Reprographics Ltd into an entirely new company called HCL Ltd.
Amalgamation means an amalgamation pursuant to the

provisions of the Companies Act, 1956 or any other statute, which may be applicable to companies
Amalgamation in the nature of merger is an amalgamation
All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company Shareholders holding not less than 90% of the face value of the equity shares of the transferor company become equity shareholders of the transferee company by virtue of the amalgamation
The above to exclude the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees
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The consideration is discharged by the transferee company wholly by the issue of equity shares in the transferee company Cash may be paid in respect of fractional shares, if any The business of the transferor company is intended to be carried on by the transferee company after amalgamation No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies.
Merger movements often occur when the economy experiences sustained high rates of growth as it reflects favourable business prospects The movements coincide with developments in the business environment Often result in efficient resource allocation, reallocation processes and efficient resource utilization The waves occur when firms respond to new investment and profit opportunities arising out of changes in economic conditions and technological innovations ..
In each of the waves mistakes have been repeated and failures have been common
Unlike in the past, M & A have become a global phenomenon and are no longer restricted to the US A new trend being observed is the rise of emerging market acquirer. Research shows that merger waves result from a combination of economic, regulatory, and technological shocks (Mark Mitchell and J. H. Mulherin, 1996) .
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Economic shocks deal with economic expansion that motivates companys to expand in order to meet the ever growing demand
Regulatory shocks occur when regulatory barriers are eliminated paving the way for corporate communication
Technological shocks represent changes in technology that not only change the existing industries but also create new ones.
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Occurred after the Great Depression of 1883
Peaked between 1898 and 1902 and ended in 1904.

Professor Ralph Nelsons study Industries affected were primary metals, food products, petroleum, products, chemicals, transportation equipment, fabricated metal products, machinery and bituminous coal Wave saw horizontal mergers and industry consolidations resulting in near monopolistic market structures.
Giants born during this wave included J.P Morgans U. S. Steel, DuPont Inc., Standard Oil, General Electric, Eastman Kodak, American Tobacco Inc. and Navistar International.
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Sherman Act enacted to control creation of such monopolies yet mergers continued Reasons responsible for the growing number of M & As were:
Unwillingness of U.S. Supreme Court to literally interpret the anti monopoly provisions of the Sherman Act Some States relaxed Corporation Laws that enabled companies to secure capital, create stock in other companies and expand their operations unabated Development of U.S transportation system facilitated expansion of markets Expansion of the firms resulted in economies of scale in production and distribution and resulted in greater efficiency
A few takeover battles saw judges and elected officials being bribed to violate legal provisions.
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Known as Period of Merging for Oligopoly Saw consolidation of several industries and growth of oligopolistic industry structure Wave produced fewer monopolies, more oligopolies and many vertical mergers Period also saw mergers between many unrelated industries creating first large-scale conglomerates. Period saw disproportionate number of mergers in primary metals, petroleum products, food products, chemicals and transportation equipment Corporations born during this wave General Motors, IBM, John Deere and Union Carbide

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Radio as a medium of advertising became popular Era of merchandising and product differentiation started The Public Utility Holding Company Act, 1935 empowered the
SEC to regulate corporate structure and voting rights Wave ended with the stock market crash on October 29, 1929 the largest single day drop Companies stopped focusing on expansion and sought merely to maintain solvency amidst declining demand
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Decade saw large companies taking over smaller firms with the motive of getting tax relief
Firms encouraged to sell businesses to outsiders since the estate taxes were very high and it was very expensive selling businesses within the family Mergers did not result in concentration of economic power since most of them held very insignificant portion of the industrial assets
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Known as Conglomerate merger period
Saw intensive merger activity backed by booming economies

Unusual element of this period was - smaller firms targeted larger companies for acquisition
Mergers resulted in diversified conglomerates

Prominent conglomerates born were Long-Temco-Vought (LTV), Litton Industries and ITT
Many small firms moving into areas outside their core business activities
Legal environment made expansion tougher
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Celler-Kefauver Act passed to prevent or prohibit the anticompetitive acquisition of a firms assets Made horizontal and vertical mergers tougher resulting in formation of conglomerates for expansion Wave continued until 1968 when Litton Industries announced that its quarterly earnings had declined first time in fourteen years Market turned sour to conglomerates and the selling pressure on stock prices increased Anti-trust lobby was hell bent upon preventing mergers for they believed they are anti competitive and result in abuse of monopoly power.
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Tax Reform Act passed in 1969 to curb manipulative accounting practices that created paper earnings that would temporarily support stock prices Curb on financing acquisitions through debt by stating that bonds would be treated as common stock for the purpose of EPS computations nullifying increase in earnings on paper Conglomerates also became unpopular for:
Was observed that buyers often overpaid for diverse companies purchased Companies often moved away from specialization resulting in deteriorating performances For Example: Revlons core cosmetics business suffered when they ventured into health care
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Known as era of Hostile Takeovers Saw a dramatic decline in the number of mergers Decade saw some trendsetting events such as:
A change in the acceptable takeover behaviour Hostile takeover of major established companies started For Example:
Sanctioning of aggressive advances by investment Banks Investment Bankers started offering consultancy services in anti-takeover defences
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INCO (International Nickel Companys) attempt to takeover ESB, the largest battery maker United Technologies bid for Otis Elevator Colt Industries attempt of hostile takeover move of Garlock Industries
Known as Wave of Megamergers
Hostile takeovers increased dramatically

Large firms became acquisition targets Mergers seen in oil and gas industry, drugs, medical equipments, banking and petroleum industry. Leading megamergers included:
Chevron and Gulf Oil Philip Morris and Kraft Texaco and Getty Oil DuPont and Conoco British Petroleum and Standard Oil of Ohio U.S. Steel and Marathon Oil Kohlberg Kravis and Beatrice
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Concept of Corporate Raider made its appearance

Corporate Raiders / Company Breaker are investors who engage in the act of directed or orchestrating a hostile takeover of a company Often goes after a corporation, with an eye on selling off the assets of the company as a means of generating huge profits
Investment Bankers played aggressive role in pursuing for M & yielded huge risk-free income
Offensive and Defensive strategies became common
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Megadeals often financed with large amounts of debt. For Example: Leveraged Buyouts
Conflicts between The Federal and State Governments increased as State Governments started passing antitakeover legislations at the behest of local companies which was seen by Federal Government as infringement of interstate commerce Deals motivated by Non U.S. companies that desired to expand into larger and more stable U.S market. Different sectors responded to deregulation differently. For Example: Response of broadcasting sector quicker than air transport
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Period saw a major economic transition such as increase in aggregate demand, longest post-war expansion of companies and rise in stock market values Phase saw large megamergers happening, few hostile deals and more strategic mergers Fad of financing merger deals through debt also got eroded and increased use of equity financing noticed. Roll ups became popular i.e. fragmented industries consolidated through large scale acquisition of companies Trend very common in industries such as funeral printing, office products and floral products
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Prominent consolidated companies:

Office Products USA Floral USA Fortress Group US Delivery Systems Coach USA Comforts Systems USA
Privatization of State owned enterprises seen
Concept of Emerging Market Bidders evolved

Companies built through acquisition of private businesses and consolidation of relatively smaller competitors in emerging markets
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Examples: Mittal takeover of Arcelor Dubai based Ports World takeover of Peninsular and Oriental Navigation Company Tata Steel takeover of Corus Group European nations started erecting barriers to impede takeover of national champions. Examples:
Merger of Suez SA and Gaz De France SA by the French Government to fend away Italian utility Enel SpA; Spain enforced a new law to prevent German E.On AGs takeover bid of Spanish utility Endesa SA
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Traditional View Focussed on competition Often resulted in horizontal mergers and created a condition of monopolistic competition Basic motivation was survival in the market through growth generally achieved through mergers and acquisitions. Motto was make them like us and the selection of the target was based on its size and quality.
Modern View Vehicle to change the control of the firms assets Process of allocation and reallocation of resources by firms in response to changes in the economic conditions and technological innovations of the market. Tool of gaining competitive advantage and a strategy for attaining growth. Focus on effective integration for creating shareholder value and improving competitive strength of the business
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Horizontal Merger
Two companies that are in direct competition and sharing the same product lines and markets combine Based on the assumption that it will provide synergy and allow enhanced cost efficiencies to the new business. Examples of Synergistic Benefits: staff reduction and reductions in related costs, economies of scale, opportunity to acquire technologies unique to the target company and increased market reach and industry visibility. For Examples: Daimler Benz and Chrysler, Glaxo Wellcome Plc. and SmithKline Beecham Plc., Exxon and Mobil, Volkswagen and Rolls Royce and Lamborghini, Ford and Volvo and so on.
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Result in creating large entities that can cause ripple effects in the sector and sometimes throughout the economy as are perceived as anti-competitive Provide the new entity an unfair competitive advantage over its competitors Regulatory authorities grant permission but impose ex ante obligations on the merged entity, where the merger would otherwise be perceived as anti competitive. For Example: In both the US and Europe, National Regulatory Authorities impose conditions on a merger perceived as anti-competitive
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Vertical Merger: Mergers of non-competing companies where one's product is a necessary component or complement of the other's Typified by one firm engaged in different aspects of production say, growing raw materials, manufacturing, transporting, marketing, and/or retailing. Can achieve pro-competitive efficiency benefits such as lower transaction costs, lead to synergistic improvements in design, production and distribution of the final output product and enhance competition
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Market-extension merger:
Merger between two companies that sell the same products in different markets.
Product-extension merger:
Occurs when two companies selling different but related products in the same market merge together Merger designed to increase the type/range of products that a company sells in a particular market
Forward integration:
One where the target firm is involved in the next stages of production / operation
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Backward Integration:
One where the target company is involved in the previous stages of production / operation. For Example: A manufacturer of a product merges his firm with the provider of the raw materials. By eliminating the provider of raw materials, the manufacturer can achieve collusion in the upstream market.
Balanced integration:
One where the company sets up subsidiaries that both supply them with inputs and distribute their outputs
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For Example:
Usha Martin and Usha Beltron Time Warner Inc. and Turner Corporation Silicon Graphics Inc.'s and Alias Research Inc. and Wavefront Technologies Inc. Apple and Intel Reliance Industries and Reliance Petrochemicals Limited Tata Industrial Finance Ltd. and Tata Finance HUL and TOMCO Torrent Group and Ahmedabad Electric Company and Surat Electric Company and so on
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Viewed as anti-competitive for they can rob the supply business from its competition. For example: If a firm has been receiving material from two separate firms and the receiving firm decides to acquire both the firms, the merger could cause the surviving firms competitors to go out of business Are designed to evade pricing regulations For example: When regulation seeks to constrain the market power of a natural monopoly, the monopolist may have incentives to integrate vertically into unregulated markets in order to extract the monopoly gains denied to them in the regulated market
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The US Supreme Court: One in which there is no economic relationships between the acquiring and the acquired firm Involve firms that are in different or unrelated business activity Preferred by firms that plan to increase their product lines Control a range of activities in various industries that require different skills in the specific managerial functions of research, applied engineering, production, marketing, and so on.
.
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Attained mainly by external acquisition and mergers and is not generally possible through internal development
Are also called concentric mergers

Firms operating in different geographic locations also prefer conglomerate mergers
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Examples include:
News Corporation Sony Time Warner Walt Disney Company Aditya Birla Group Berkshire Hathaway General Motors Mahindra Group Motorola Tata Group Hyundai Mitsubishi
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Pure Conglomerate: Involve firms that have nothing in common
Mixed Conglomerates: Involve firms that are looking for product extensions or market extensions
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Financial Conglomerates: Are active in providing funds to every segment of the operations and are the ultimate financial risk takers Not only assume financial responsibility and control but also play a major role in all the operating decisions Focus mainly on:
Improving risk-return ratio Reducing business related risk Improving the quality of general and functional managerial performance Providing effective competitive process and distinguishing between performance based on underlying potentials in the product market
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Managerial Conglomerates:
Focus on providing managerial counseling and interaction on decisions with the motive of increasing potential for improving performance Come into play when two firms of unequal managerial competence combine
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Concentric Companies:
Is one where there is a carry-over of specific management functions or any complementarities in relative strengths between management functions. Is the primary difference between managerial conglomerate and concentric company, i.e. the distinction between respective general and specific management functions
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Contribute to aggregate increase in economic power and possible non-economic effects resulting from an increase in the general economic concentration Critics also fear that economic concentration would lead to corresponding aggression in political power by fewer but more powerful conglomerate firms, placing major decisions, both political and economic, in the hands of few individuals or firms that have direct accountability to the general public
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Accretive implies value creation

Occur when a company with a high price to earnings ratio purchases a company with a low price to earnings ratio. Helps acquiring company to increases its EPS
Happens because the merger results in operational and financial synergies and gives boost to the earnings of the acquiring company.
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Dilutive implies destruction or dilution

One where the EPS of the acquiring company tends to fall post merger resulting in decline in the share prices too Decline due to the market forces presuming the merger would destroy value and would not result in synergies post merger.
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An attempt made by one firm to gain a majority interest in another firm

Firm attempting to gain a majority interest is called the acquiring firm and the other firm is called the target firm Acquiring firm pays for the net assets, goodwill, and brand name of the company bought. Actions through which companies seek to achieve economies of scale, increased efficiency, and enhanced market visibility
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Acquisitions may lead to:

A subsequent merger
Establishment of a parent- subsidiary relationship

A strategy of breaking up the target firm and disposing of part or all its assets Conversion of the target firm into a private firm.
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Too few targets

Inappropriate targets Lack of creativity Lack of forward planning
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Increase the number of targets Do not chase the one everyone else is bidding for Compare the targets concurrently to choose the right and the best target. Buy firms with assets that meet the current needs to build competitiveness Provide adequate financial resources not be forego targets Identify targets that are more likely to lead to easy integration and building synergies Continue to invest in research and development as a part of the firms overall strategy.
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Assets Purchase Acquiring firm purchases specific identifiable assets of the business Assets perceived as having potential to add value to the acquiring company May also assume specified liabilities perceived as having potential to add value to the acquiring company Help the acquiring company to reduce the risk of taking on unknown liabilities such as sellers contracts, employees, etc.
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Is keen on mode as they can acquire the assets at a comparatively lower price. Potentially reduces future capital gains tax upon a sale of the assets.
Increases the future depreciation expense, thereby reducing income tax.
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Has to bear capital gains tax on difference between bases in assets sold and purchase price allocated to such assets which could be substantial if assets are heavily depreciated
If the target company desires to use the proceeds of the asset sale for paying dividend to the stockholders, dividend would be subject to an additional tax, thus increasing the burden on the target company
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Requires purchase agreement to allocate purchase price among specific list of assets Acquiring company must be assured that all necessary assets are listed Closing the deal is comparatively difficult as: For titled assets such as vehicles and property transferring, the ownership title of each asset becomes a tedious task. Consent of the shareholders is required for each transfer. If the entire business is being sold, each employee must be terminated and re-hired by the acquirer. This can create a lot of employee benefit issues
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The acquirer purchases the entire outstanding equity of the target company Acquirer purchases the entire company and all assets and liabilities of the business that come with it
Stock purchase does not cause any disruption in the operations which can continue as usual.
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Closings are simplified
Fewer contract consents and very little paper work is required to transfer specific assets.
All employees and employee benefits are transferred with the stock sale.
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Only incurs capital gain on difference between basis in stock sold, which is not subject to depreciation, and purchase price for stock.
No dividend has to be paid to distribute the proceeds of sale to stockholders and therefore double taxation can be avoided. Not required to tackle any issues relating to winding up of the company after closing.
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Cannot pick and choose assets and liabilities. Also it has to inherit everything, including unknown liabilities such as sellers contracts, employees, etc.
The tax basis in the assets purchased does not get stepped up.
Potential of larger capital gains tax on a future sale of heavily depreciated assets although lower depreciation provision reduces the tax liability.
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57
Generates long generic list of sub-elements Tool is more descriptive and less analytical Sub elements are just listed and not prioritized
Tool used only as an instrument of planning and not implementation
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Stars:
Companies that are high growth where the company holds a high share. Likely to generate adequate cash and always be self-sustaining. Need to put in a lot of efforts in protecting their enviable positions, protect profit margins and increase turnover to derive cost related economies Acquirer should try to identify such divisions in the market and if possible acquire them at all costs If such a division is already owned the growth strategy needs to be aggressive and entity should invest aggressively in research and development and expand the product portfolio. For Example: When BMW bought Rover, experts thought its products would help the German Auto maker reach new customers. But the company was not able to capitalize on this opportunity so it sold the Rover car to a British firm and Land Rover to Ford.
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Cash Cows: Business can be used to support other business units Cash Cows are divisions that hold a high share in mature markets but do not have much growth potential left. On account of the high market share such divisions are able to generate adequate profits which can be used to fund divisions classified as Stars or Question Marks.
If an entity owns such divisions its strategy should be to defend and maintain their position in the market so that the division can be milked.
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Question Marks:
Entities with low share but a very high potential for growth as it is operating in fast-growing markets
Need a lot of cash to exploit the growth opportunities available in the market
Generic strategy for such a division is that of high-risk If the entity is able to generate cash through the cash cows divisions, the same should be invested aggressively in Question marks. If the entity is unable to generate cash then this division should be divested as sustaining the division with its present low share is difficult.
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Dogs:
Businesses that have a very small share in the market and have a very low growth potential i.e. they do not hold much future economic promise and are on the verge of dying. Investing in such divisions reflects a narrow view of the business having no future except high risk. Are cash traps and can only eat into the profits of the company. Acquirer should avoid acquiring such companies as they would not add any value and would result increased losses and turn out to be a bad buy decision. If the company owns any such unit or division it is better to divest such a division as soon as possible or else it would keep accumulating losses and affect the overall profitability of the group
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Critics have criticised the BCG Matrix on the grounds that it is relatively narrow in its approach and is overly simple.
GE matrix developed to address this criticism

Also known as GE Business Screen
Is a portfolio management technique that focuses on industry attractiveness and competitive position
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Two factors are further divided into 3 categories, making it a 3 x 3 matrix

Cells then used to classify the business units into winners, losers, question marks, average businesses and profit producers.
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Include:
Market growth Market size Competitive intensity and Capital requirements.
When factors are assessed collectively it implies that greater the market growth, the larger the market, the lesser the capital requirements and less the competitive intensity, the more attractive the industry will be.
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Other determinants of an organizations competitive position in an industry include:

market share technological know-how product quality service network price competitiveness and operating costs.
A business with a larger market share, technological knowhow, high product quality, a quality service network, competitive prices and low operating enjoy a favourable competitive position in the market.
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The matrix suggests that:

Acquirer should invest in winners and questions marks where the industry attractiveness and competitive position are both favourable; Maintain the market position of average businesses and profit producers where industry attractiveness and competitive position is average and Sell losers, in case it owns any. For Example: Unilever undertook a major exercise of assessing its business portfolio and based on the results decided to sell off several speciality chemical units that were not contributing to the firms profitability. The resources generated through such divestitures were used to acquire related businesses like Ben and Jerry, Homemade and Slim-fast
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Based on the logic that a corporate strategy should be able to counter the opportunities and threats prevailing in the organizations external environment.
Especially true in case of the competitive strategy which the argument states should be based on the understanding of industry structures and the way they change.
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Supplier concentration Importance of volume to supplier Differentiation of inputs Impact of inputs on cost differentiation Switching costs of firms in the industry Presence of substitute inputs Threat of Forward integration Cost relative to total purchases in industry
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Switching costs Buyer inclination to substitute Price performance trade-off of substitutes
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Bargaining leverage Buyer volume Buyer information Brand identity Price sensitivity Threat of backward integration Product differentiation Buyer concentration vs industry Substitutes available Buyers incentives
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Absolute cost advantage Proprietary learning curve Access to inputs Switching costs Government policy Economies of Scale Capital requirements Brand identity Access to distribution Expected retaliation Proprietary products
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Exit barriers Industry concentration Fixed costs/value added Industry growth Intermittent overcapacity Product differences Switching costs Brand identity Diversity of rivals Corporate stakes
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Model should be used at the industry level and is not designed to be used at the industry group or industry sector level. Firms that compete in a single industry should at least try and develop one of the five forces for themselves. Fundamental issue for a diversified company is selection of industries in which the company should compete. Critical issue while targeting companies for mergers, acquisitions and diversification. Thorough analysis of elements required to be done and only thereafter the company should proceed with its plans of mergers and acquisitions.
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Both mergers and acquisitions involve one or multiple companies purchasing all or part of another company.
Main distinction between a merger and an acquisition is how they are financed. When a company takes over another company and establishes itself as a new entity the process is called acquisition. Here the target company ceases to exist while the buyer company continues.
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Merger is a process where two entities agree to move forward as a single entity as against remaining separately owned and operated entities.
Mergers are typically more expensive than acquisitions, with the parties incurring higher legal costs.
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The stock of the acquiring company continues to be traded in an acquisition, while in case of a merger the stocks of both the entities are surrendered and the stocks of the new company are issued in its place.
One entity buys another and allows the acquired firm to proclaim that the action is merger and not acquisition. This is done to ward off the negativity often associated with acquisition.
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A merger does not require cash. A merger may be accomplished tax-free for both parties. A merger lets the target company realize the appreciation potential of the merged entity, instead of being limited to sales proceeds. A merger allows the shareholders of smaller entities to own a smaller piece of a larger pie, increasing their overall net worth. A merger of a privately held company into a publicly held company allows the target company shareholders to receive a public companys stock. A merger allows the acquirer to avoid many of the costly and timeconsuming aspects of asset purchases, such as the assignment of leases and bulk-sales notifications. Merger is of considerable importance when there are minority stockholders. The transaction becomes effective and dissenting shareholders are obliged to go along once the buyer obtains the required number of votes in support of the merger.
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Synergy
Operating synergy Financial synergy

Examples: When HUL acquired Lakme, it helped them to enter the cosmetics market through an established brand. When Glaxo and Smithkline Beecham merged, they not only gained market share but also eliminated competition between each other. Tata tea acquired Tetley to leverage Tetleys international marketing strengths.
Acquiring new technology:
For example: Mergers amongst logistics companies such as a land transport entity with an airline cargo company
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Improved profitability
For example, European Media Group Bertelsmann, Pearson, etc. have driven their growth by expanding into US through M & A.
Acquiring a Competence:
For example: Similarly IBM merged with Daksh for acquiring competencies that the latter possessed.
For example: The merger of Orange, Hutch and Vodafone was carried out to achieve this objective.
Entry into new markets
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Access to funds Company finds it difficult to access funds from the capital market. Deprives the company to pursue its growth objectives effectively. So merger pursued For example: TDPL merged with Sun Pharma since TDPL did not have funds to launch new products.
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Tax benefits For example: Ashok Leyland Information Technology (ALIT) was acquired by Hinduja Finance, a group company, so that it could set off the accumulated losses in ALITs books against its profits.
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Identifying value drivers in M & As

Value created through M & A = Increase in synergy minus Decrease in premium
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Increasing synergy
Decreasing the premium Managerial skills Boosting marginal revenue Lowering total costs
Reducing marginal Costs through operating synergy

Reduction in beta
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Thank you!

Chapter 3 - Mergers and Acquisitions

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Oxford University Press 2011. All rights reserved.

Oxford University Press 2011. All rights reserved.

Oxford University Press 2011. All rights reserved.

Amalgamation means an amalgamation pursuant to the

Amalgamation in the nature of merger is an amalgamation

Oxford University Press 2011. All rights reserved.

Oxford University Press 2011. All rights reserved.

Oxford University Press 2011. All rights reserved.

Occurred after the Great Depression of 1883

Peaked between 1898 and 1902 and ended in 1904.

Oxford University Press 2011. All rights reserved.

Oxford University Press 2011. All rights reserved.

Known as Conglomerate merger period

Saw intensive merger activity backed by booming economies

Mergers resulted in diversified conglomerates

Oxford University Press 2011. All rights reserved.

Known as Wave of Megamergers

Hostile takeovers increased dramatically

Concept of Corporate Raider made its appearance

Prominent consolidated companies:

Privatization of State owned enterprises seen

Concept of Emerging Market Bidders evolved

Oxford University Press 2011. All rights reserved.

Oxford University Press 2011. All rights reserved.

Oxford University Press 2011. All rights reserved.

Oxford University Press 2011. All rights reserved.

Oxford University Press 2011. All rights reserved.

Oxford University Press 2011. All rights reserved.

Oxford University Press 2011. All rights reserved.

Oxford University Press 2011. All rights reserved.

Are also called concentric mergers

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Pure Conglomerate: Involve firms that have nothing in common

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Oxford University Press 2011. All rights reserved.

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Accretive implies value creation

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Dilutive implies destruction or dilution

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An attempt made by one firm to gain a majority interest in another firm

Acquisitions may lead to:

Establishment of a parent- subsidiary relationship

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Too few targets

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Closings are simplified

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Tool used only as an instrument of planning and not implementation

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Oxford University Press 2011. All rights reserved.

Oxford University Press 2011. All rights reserved.

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GE matrix developed to address this criticism