MERGERS & OTHER BUSINESS COMBINATIONS
Consolidations, Mergers & Holding Company
Result of an agreement between 2 or more companies to join their
operations together
MERGERS
A
B CAOccurs when two (or more)
corporations combine to create an entirely new corporate entity. None
of the company survive.
CONSOLIDATION / ACQUISITION
A
B CA
BC
A holding company is a firm that owns sufficient voting stock in one or more other companies so as to have effective control
over them
DEFINITIONS
HOLDING COMPANY
WHY MERGERS AND ACQUISITIONS
To gain new technology
Grow revenue
Market Share
Strategic assets
TYPES OF MERGERS
Occurs between firms that have
related business interests
Congenric Mergers
Horizontal
Vertical
Combination of two firms
engaged in the same business
When a company merge with its
Suppliers
Upstream DownstreamWhen a company merge
with its Product distributors or customers
EXAMPLES
HP and Compaq
Congenric MergersHorizontal
Vertical
Time Warner Incorporated, a major cable operation, and the
Turner Corporation, which produces CNN, TBS
Upstream Downstream
K & N’s
Daimler-Benz and Chrysler
TYPES OF MERGERS
These mergers combine when
unrelated businesses combine
CONLOMERATE
Sony
Sony, which had previously been primarily in the consumer electronics manufacturing
business, moved into the media industry through a series of conglomerate mergers. In
1989, Sony merged with American film and television production corporation
Columbia Pictures Entertainment Inc., made up of Columbia Pictures and Tristar
Pictures, from Coca-Cola for $3.4 billion. In 1991, the new company became Sony's
key media division.
CONGENRIC MERGER
Advantages
New Vision
Modification of input
Employment
opportunity
Diversifications in
operations
Ability to compete
Diversification in
Skills
Market Share
Cost reduction
Capital Resource
Disadvantages
Communication
gap may arise
Cultural Fit
Good will affected
Customer may
become dis-loyal
Employee Lay off
Management
Conflicts
Failure Merger
HP and Compaq
In 2001, struggling computing giant Hewlett Packard announced it would merge with similarly struggling competitor Compaq. The merger was ill-fated from the
start, as critics pointed out how the HP engineering-driven culture was based on consensus and the sales-driven Compaq culture on rapid decision making. This
poor cultural fit resulted in years of bitter infighting in the new company, and resulted in a loss of an estimated 13 billion dollars in market capitalization.
Though the merger itself was widely regarded a s a failure, the company has hung on, and has been able to make significant cultural and leadership changes
that have resulted in long-term success.
HOLDING COMPANY
The company has stakes in the fertilizer, food, power generation, petrochemicals, automation and terminal storage industries.
Controlling interest is the principal advantage of holding companies
HOW A MERGER IS EFFECTED
How merger is effected
Friendly Take Over
Purchase of assets
Purchase the stock
Hostile Takeover
Tender offer
Proxy Fight
OTHER FORMS OF CORPORATE RESTRUCTURING
Sell-Off
Spin-offs
Going Private
Liquidations
ANY QUESTIONS