term paper on merger and acquisition

Overview of Mergers and Acquisitions

First Online: 02 November 2021

Cite this chapter

Felix Lessambo 2

759 Accesses

Mergers & Acquisitions are a means of creating shareholder value by exploiting synergies, increasing growth, replacing inefficient managers, gaining market power, and extracting benefits from financial and operational restructuring. However, for value to be created, the benefits of these motives must exceed the costs. Growth is often considered vital to the health of a company. A stagnating company may have difficulty attracting high-quality management.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Available as PDF
Read on any device
Instant download
Own it forever
Available as EPUB and PDF
Compact, lightweight edition
Dispatched in 3 to 5 business days
Free shipping worldwide - see info
Durable hardcover edition

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Author information

Authors and affiliations.

Gabelli School of Business, Accounting & Tax, Fordham University, New York, NY, USA

Felix Lessambo

You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

Copyright information

About this chapter

Lessambo, F. (2021). Overview of Mergers and Acquisitions. In: U.S. Mergers and Acquisitions. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-85735-6_1

Download citation

DOI : https://doi.org/10.1007/978-3-030-85735-6_1

Published : 02 November 2021

Publisher Name : Palgrave Macmillan, Cham

Print ISBN : 978-3-030-85734-9

Online ISBN : 978-3-030-85735-6

eBook Packages : Economics and Finance Economics and Finance (R0)

Share this chapter

Anyone you share the following link with will be able to read this content:

Sorry, a shareable link is not currently available for this article.

Provided by the Springer Nature SharedIt content-sharing initiative

Publish with us

Policies and ethics

Find a journal
Track your research

Digital Commons @ University of South Florida

USF Research
USF Libraries

Digital Commons @ USF > Office of Graduate Studies > USF Graduate Theses and Dissertations > USF Tampa Theses and Dissertations > 5055

USF Tampa Graduate Theses and Dissertations

Essays on mergers and acquisitions.

Marcin Krolikowski , University of South Florida Follow

Graduation Year

Document type.

Dissertation

Degree Granting Department

Business Administration

Major Professor

Ninon Sutton, Ph.D

Co-Major Professor

Jianping Qi, Ph.D.

Committee Member

Daniel Bradley, Ph.D.

Christos Pantzalis, Ph.D.

Contracting, Executive Compensation, Managerial Incentives, Networks, Sarbanes-Oxley Act

This dissertation includes two essays that examine mergers and acquisitions. In the first essay we examine how pay-for-performance influences the quality of merger decisions before and after Sarbanes-Oxley (SOX). Pay-for performance has a significant positive effect on acquirer returns of 0.9% pre-SOX and 1.1% post-SOX around the three day event window. Bidders with high pay-for-performance pay a 23.3% lower merger premium in listed target acquisitions. The positive effect of pay-for-performance is more important for public target acquisitions overall, for small acquirers pre-SOX, and for large acquirers post-SOX. In the long-run, bidders with high pre-merger pay-for-performance experience 27.6% higher returns after controlling for other merger characteristic.

In the second essay we investigate the value of customer/supplier relationships in mergers acquisitions. The findings show that targets (suppliers) with strong customer/supplier relationships obtain higher abnormal returns and higher merger premiums compared to targets with weak customer/supplier relationships. However, targets that have a strong connection with a customer have lower odds of being acquired. Acquirers that purchase targets with strong customer/supplier relationships have negative long-run abnormal returns, suggesting that the acquirers may have overpaid for such targets. Implications of customer/supplier relationships on customers, rivals and competing rivals are presented.

Scholar Commons Citation

Krolikowski, Marcin, "Essays on Mergers and Acquisitions" (2014). USF Tampa Graduate Theses and Dissertations. https://digitalcommons.usf.edu/etd/5055

Since May 19, 2014

Included in

Accounting Commons , Business Administration, Management, and Operations Commons , Finance and Financial Management Commons

Advanced Search

Email Notifications and RSS
All Collections
USF Faculty Publications
Open Access Journals
Conferences and Events
Theses and Dissertations
Textbooks Collection

Useful Links

USF Office of Graduate Studies
Rights Information
SelectedWorks
Submit Research

Privacy Copyright

Business Essentials

Mergers and Acquisitions (M&A): Types, Structures, Valuations

Search Search Please fill out this field.
Mergers and Acquisitions (M&A)
Understanding M&As
Different Types

How Mergers Are Structured

How acquisitions are financed.

Valuing Mergers and Acquisitions

Frequently Asked Questions

Mergers and Acquisitions FAQs

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

What Are Mergers and Acquisitions (M&A)?

The term mergers and acquisitions (M&A) refers to the consolidation of companies or their major business assets through financial transactions between companies. A company may purchase and absorb another company outright, merge with it to create a new company, acquire some or all of its major assets, make a tender offer for its stock, or stage a hostile takeover. All are M&A activities .

The term M&A also is used to describe the divisions of financial institutions that deal in such activity.

Key Takeaways

The terms "mergers" and "acquisitions" are often used interchangeably, but they differ in meaning.
In an acquisition, one company purchases another outright.
A merger is the combination of two firms, which subsequently form a new legal entity under the banner of one corporate name.
A company can be objectively valued by studying comparable companies in an industry and using metrics.

What's an Acquisition?

Understanding mergers and acquisitions.

The terms mergers and acquisitions are often used interchangeably, however, they have slightly different meanings .

When one company takes over another and establishes itself as the new owner, the purchase is called an acquisition.

On the other hand, a merger describes two firms, of approximately the same size, that join forces to move forward as a single new entity, rather than remain separately owned and operated. This action is known as a merger of equals . Case in point: Both Daimler-Benz and Chrysler ceased to exist when the two firms merged , and a new company, DaimlerChrysler, was created. Both companies' stocks were surrendered, and new company stock was issued in its place. In a brand refresh, the company underwent another name and ticker change to the Mercedes-Benz Group AG (MBG) in February 2022.

A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies.

Unfriendly or hostile takeover deals, in which target companies do not wish to be purchased, are always regarded as acquisitions. A deal can be classified as a merger or an acquisition based on whether the acquisition is friendly or hostile and how it is announced. In other words, the difference lies in how the deal is communicated to the target company's board of directors , employees, and shareholders .

Lara Antal/Investopedia

M&A deals generate sizable profits for the investment banking industry, but not all mergers or acquisition deals close.

Types of Mergers and Acquisitions

The following are some common transactions that fall under the M&A umbrella.

In a merger, the boards of directors for two companies approve the combination and seek shareholders' approval. For example, in 1998, a merger deal occurred between the Digital Equipment Corporation and Compaq, whereby Compaq absorbed the Digital Equipment Corporation. Compaq later merged with Hewlett-Packard in 2002. Compaq's pre-merger ticker symbol was CPQ. This was combined with Hewlett-Packard's ticker symbol (HWP) to create the current ticker symbol (HPQ).

Acquisitions

In a simple acquisition, the acquiring company obtains the majority stake in the acquired firm, which does not change its name or alter its organizational structure. An example of this type of transaction is Manulife Financial Corporation's 2004 acquisition of John Hancock Financial Services, wherein both companies preserved their names and organizational structures. The target company may require the buyers to promise that the target business remains solvent for a period after acquisition through the use of a whitewash resolution .

Consolidations

Consolidation creates a new company by combining core businesses and abandoning the old corporate structures. Stockholders of both companies must approve the consolidation, and subsequent to the approval, receive common equity shares in the new firm. For example, in 1998, Citicorp and Travelers Insurance Group announced a consolidation, which resulted in Citigroup.

Tender Offers

In a tender offer, one company offers to purchase the outstanding stock of the other firm at a specific price rather than the market price. The acquiring company communicates the offer directly to the other company's shareholders, bypassing the management and board of directors. For example, in 2008, Johnson & Johnson made a tender offer to acquire Omrix Biopharmaceuticals for $438 million. The company agreed to the tender offer and the deal was settled by the end of December 2008.

Acquisition of Assets

In an acquisition of assets, one company directly acquires the assets of another company. The company whose assets are being acquired must obtain approval from its shareholders. The purchase of assets is typical during bankruptcy proceedings, wherein other companies bid for various assets of the bankrupt company, which is liquidated upon the final transfer of assets to the acquiring firms.

Management Acquisitions

In a management acquisition, also known as a management-led buyout (MBO) , a company's executives purchase a controlling stake in another company, taking it private. These former executives often partner with a financier or former corporate officers in an effort to help fund a transaction. Such M&A transactions are typically financed disproportionately with debt, and the majority of shareholders must approve it. For example, in 2013, Dell Corporation announced that it was acquired by its founder, Michael Dell .

Mergers can be structured in a number of different ways, based on the relationship between the two companies involved in the deal:

Horizontal merger : Two companies that are in direct competition and share the same product lines and markets .
Vertical merger : A customer and company or a supplier and company. Think of an ice cream maker merging with a cone supplier.
Congeneric mergers : Two businesses that serve the same consumer base in different ways, such as a TV manufacturer and a cable company.
Market-extension merger : Two companies that sell the same products in different markets.
Product-extension merger : Two companies selling different but related products in the same market.
Conglomeration : Two companies that have no common business areas.

Mergers may also be distinguished by following two financing methods, each with its own ramifications for investors.

Purchase Mergers

As the name suggests, this kind of merger occurs when one company purchases another company. The purchase is made with cash or through the issue of some kind of debt instrument. The sale is taxable, which attracts the acquiring companies, who enjoy the tax benefits. Acquired assets can be written up to the actual purchase price, and the difference between the book value and the purchase price of the assets can depreciate annually, reducing taxes payable by the acquiring company.

Consolidation Mergers

With this merger, a brand new company is formed, and both companies are bought and combined under the new entity. The tax terms are the same as those of a purchase merger.

A company can buy another company with cash, stock, assumption of debt, or a combination of some or all of the three. At times, the investment bank involved in the sell of one company might offer financing to the buying compnay. This is known as staple financing and is done to produce larger and timely bids.

In smaller deals, it is also common for one company to acquire all of another company's assets. Company X buys all of Company Y's assets for cash, which means that Company Y will have only cash (and debt, if any). Of course, Company Y becomes merely a shell and will eventually liquidate or enter other areas of business.

Another acquisition deal known as a reverse merger enables a private company to become publicly listed in a relatively short time period. Reverse mergers occur when a private company that has strong prospects and is eager to acquire financing buys a publicly listed shell company with no legitimate business operations and limited assets. The private company reverses merges into the public company , and together they become an entirely new public corporation with tradable shares.

How Mergers and Acquisitions Are Valued

Both companies involved on either side of an M&A deal will value the target company differently. The seller will obviously value the company at the highest price possible, while the buyer will attempt to buy it for the lowest price possible. Fortunately, a company can be objectively valued by studying comparable companies in an industry, and by relying on the following metrics.

Price-to-Earnings Ratio (P/E Ratio)

With the use of a price-to-earnings ratio (P/E ratio) , an acquiring company makes an offer that is a multiple of the earnings of the target company. Examining the P/E for all the stocks within the same industry group will give the acquiring company good guidance for what the target's P/E multiple should be.

Enterprise-Value-to-Sales Ratio (EV/Sales)

With an enterprise-value-to-sales ratio (EV/sales) , the acquiring company makes an offer as a multiple of the revenues while being aware of the price-to-sales (P/S ratio) of other companies in the industry.

Discounted Cash Flow (DCF)

A key valuation tool in M&A, a discounted cash flow (DFC) analysis determines a company's current value, according to its estimated future cash flows. Forecasted free cash flows (net income + depreciation/amortization (capital expenditures) change in working capital) are discounted to a present value using the company's weighted average cost of capital (WACC) . Admittedly, DCF is tricky to get right, but few tools can rival this valuation method.

Replacement Cost

In a few cases, acquisitions are based on the cost of replacing the target company. For simplicity's sake, suppose the value of a company is simply the sum of all its equipment and staffing costs. The acquiring company can literally order the target to sell at that price, or it will create a competitor for the same cost.

Naturally, it takes a long time to assemble good management, acquire property, and purchase the right equipment. This method of establishing a price certainly wouldn't make much sense in a service industry wherein the key assets (people and ideas) are hard to value and develop.

How Do Mergers Differ From Acquisitions?

In general, "acquisition" describes a transaction, wherein one firm absorbs another firm via a takeover . The term "merger" is used when the purchasing and target companies mutually combine to form a completely new entity. Because each combination is a unique case with its own peculiarities and reasons for undertaking the transaction, the use of these terms tends to overlap.

Why Do Companies Keep Acquiring Other Companies Through M&A?

Two of the key drivers of capitalism are competition and growth. When a company faces competition, it must both cut costs and innovate at the same time. One solution is to acquire competitors so that they are no longer a threat. Companies also complete M&A to grow by acquiring new product lines, intellectual property, human capital, and customer bases. Companies may also look for synergies. By combining business activities, overall performance efficiency tends to increase, and across-the-board costs tend to drop as each company leverages the other company's strengths.

What Is a Hostile Takeover?

Friendly acquisitions are most common and occur when the target firm agrees to be acquired; its board of directors and shareholders approve of the acquisition, and these combinations often work for the mutual benefit of the acquiring and target companies.

Unfriendly acquisitions, commonly known as hostile takeovers, occur when the target company does not consent to the acquisition.

Hostile acquisitions don't have the same agreement from the target firm, and so the acquiring firm must actively purchase large stakes of the target company to gain a controlling interest, which forces the acquisition.

How Does M&A Activity Affect Shareholders?

Generally speaking, in the days leading up to a merger or acquisition, shareholders of the acquiring firm will see a temporary drop in share value. At the same time, shares in the target firm typically experience a rise in value. This is often due to the fact that the acquiring firm will need to spend capital to acquire the target firm at a premium to the pre-takeover share prices.

After a merger or acquisition officially takes effect, the stock price usually exceeds the value of each underlying company during its pre-takeover stage. In the absence of unfavorable economic conditions , shareholders of the merged company usually experience favorable long-term performance and dividends.

Note that the shareholders of both companies may experience a dilution of voting power due to the increased number of shares released during the merger process. This phenomenon is prominent in stock-for-stock mergers , when the new company offers its shares in exchange for shares in the target company, at an agreed-upon conversion rate . Shareholders of the acquiring company experience a marginal loss of voting power, while shareholders of a smaller target company may see a significant erosion of their voting powers in the relatively larger pool of stakeholders.

What Is the Difference Between a Vertical and Horizontal Merger or Acquisition?

Horizontal integration and vertical integration are competitive strategies that companies use to consolidate their position among competitors. Horizontal integration is the acquisition of a related business. A company that opts for horizontal integration will take over another company that operates at the same level of the value chain in an industry—for instance when Marriott International, Inc. acquired Starwood Hotels & Resorts Worldwide, Inc.

Vertical integration refers to the process of acquiring business operations within the same production vertical. A company that opts for vertical integration takes complete control over one or more stages in the production or distribution of a product. Apple, for example, acquired AuthenTec, which makes the touch ID fingerprint sensor technology that goes into its iPhones.

Daimler. " Company History ."

Mercedes-Benz Group. " Daimler Embarks on a New Era as Mercedes-Benz Group ."

McKinsey & Company. " Done Deal? Why Many Large Transactions Fail to Cross the Finish Line ."

U.S. Securities and Exchange Commission. " Compaq Computer Corporation, Form Q-10, For the Quarterly Period Ended September 30, 1999 ." Page 6.

Hewlett-Packard Company Archives. " A Pact With Compaq ."

Manulife Financial. " Manulife Financial and John Hancock Complete Merger Creating North America’s Second Largest Life Insurance Company ."

Federal Reserve System. " Federal Reserve Press Release, September 23, 1998 ."

U.S. Securities and Exchange Commission. " Tender Offer ."

U.S. Securities and Exchange Commission. " Offer to Purchase for Cash All Outstanding Shares of Common Stock of Omrix Biopharmaceuticals, Inc. at $25.00 Net per Share by Binder Merger Sub, Inc., a Wholly-Owned Subsidiary of Johnson & Johnson ."

Fierce Biotech. " Johnson & Johnson Completes Acquisition of Omrix Biopharmaceuticals, Inc ."

Dell. " Open Letter to Shareholders From Michael Dell ."

Marriott International. " Marriott International Completes Acquisition of Starwood Hotels & Resorts Worldwide, Creating World's Largest and Best Hotel Company While Providing Unparalleled Guest Experience ."

U.S. Securities and Exchange Commission. " AuthenTec, Inc., Form 8-K, July 26, 2012 ."

Mergers and Acquisitions (M&A): Types, Structures, Valuations 1 of 39
Merger: Definition, How It Works With Types and Examples 2 of 39
What Is an Acquisition? Definition, Meaning, Types, and Examples 3 of 39
Why Do Companies Merge With or Acquire Other Companies? 4 of 39
How M&A Can Affect a Company 5 of 39
Mergers and Acquisitions: What's the Difference? 6 of 39
The Corporate Merger: What to Know About When Companies Come Together 7 of 39
Inorganic Growth: Definition, How It Arises, Methods, and Example 8 of 39
What Is a Takeover? Definition, How They're Funded, and Example 9 of 39
Mergers vs. Takeovers: What's the Difference? 10 of 39
What Is a Takeover Bid? Definition, Types, and Example 11 of 39
Hostile Takeover Explained: What It Is, How It Works, and Examples 12 of 39
Hostile Takeovers vs. Friendly Takeovers: What's the Difference? 13 of 39
What Are Some Top Examples of Hostile Takeovers? 14 of 39
How Can a Company Resist a Hostile Takeover? 15 of 39
Poison Pill: A Defense Strategy and Shareholder Rights Plan 16 of 39
What Is an Reverse Takeover (RTO)? Definition and How It Works 17 of 39
Reverse Mergers: Advantages and Disadvantages 18 of 39
Reverse Triangular Merger: Overview and Advantages 19 of 39
A Guide to Spotting a Reverse Merger 20 of 39
How Does a Merger Affect Shareholders? 21 of 39
How Company Stocks Move During an Acquisition 22 of 39
What Happens to Call Options When a Company Is Acquired? 23 of 39
Stock-for-Stock Merger: Definition, How It Works, and Example 24 of 39
All-Cash, All-Stock Offer: Definition, Downsides, Alternatives 25 of 39
Swap Ratio: What it is, How it Works, Special Considerations 26 of 39
Acquisition Premium: Difference Between Real Value and Price Paid 27 of 39
Understanding and Calculating the Exchange Ratio 28 of 39
SEC Form S-4: Definition, Purpose, and Filing Requirements 29 of 39
Special Purpose Acquisition Company (SPAC) Explained: Examples and Risks 30 of 39
Bear Hug: Business Definition, With Pros and Cons 31 of 39
Understanding Leveraged Buyout Scenarios 32 of 39
Vertical Merger: Definition, How It Works, Purpose, and Example 33 of 39
Horizontal Merger: Definition, Examples, How It Differs from a Vertical Merger 34 of 39
Conglomerate Mergers: Definition, Purposes, and Examples 35 of 39
Roll-Up Merger: Overview, Benefits and Examples 36 of 39
The 5 Biggest Mergers in History 37 of 39
The 5 Biggest Acquisitions in History 38 of 39
4 Cases When M&A Strategy Failed for the Acquirer (EBAY, BAC) 39 of 39

Terms of Service
Editorial Policy
Privacy Policy
Your Privacy Choices

Merck & Co Acquisition of Medco Essay

Introduction, major force driving this acquisition of merger between merck’s and medco, synergies of the merger, the ratio of exchange, benefits of merger, competitive reactions to merck’s acquisition of medco.

In today’s competitive world, when globalization has taken the front seat in almost all parts of the world, the companies have to face enormous amount of competition. It helps organizations to avoid investing considerable amount of money in combating the competition. For avoiding unnecessary blockage of money into things, which do not lay any output for the firms, the companies these days resort to corporate restructuring processes.

Corporate restructuring involve mergers and acquisitions. On the bigger picture, the mergers and acquisition leave lasting effects on the performance and fate of the company.

A merger is the coming together of two companies to form one larger company. Such actions in the business world are normally voluntary and they will involve cash payment to the company that is targeted or even stock swap. There may be a stock swap, which is mostly used by many companies since it always has the provision of allowing the shareholders from both companies to share all the involved risks in the business deal. The merger often has effect on the earnings of the company as well as on their market goodwill. Hence, the price of the share is also affected.

Whenever any company goes through phases of restructuring, the expected output could be either negative or positive. In a way, a merger may be similar to acquisition but in merging companies, the resulting company will always have a new name, which may be a combination of the companies’ names. Branding of the resulting company will purely depend on the marketing and political reasons.

Thus as time continues to pass and competition tightens between companies competing for the same markets, the drive to merge will continue taking precedence. It should be remembered that the management of the companies plays a key role in the discussion of choosing a merger as a right strategy. It has been noted that a key element in mergers is to increase the competitiveness of the new organization and bring about better fortunes.

Mergers increase shareholder value and attract accrual of gains to the target company. Among the benefits, include the benefits of economies of scale, attempts by companies to form oligopolies and monopolies thereby creating market power, and need for diversification.

In essence, formation of mergers is attributed to waves in an industry, prompting different companies to react by uniting and clustering to enhance their survival. The failure of the efficient market hypothesis gives rise to acquisitional takeovers, in which companies strive to increase their market power by accumulating material, financial, and human resources.

Mergers are largely associated with increased shareholder value and company profitability, usually through expansions, diversifications, and cost savings (Gugler, Mueller, Yurtoglu and Zulehner, 2003).

By using share values for the merged companies before and after the mergers, the researchers report that most of such mergers result in increased share value, implying that the wealth of the shareholder and the value of the company in the eyes of investors have increased. However, the value of shares of the acquiring firm and those of the target firm differ in relation to market conditions and public perceptions regarding the merger (Hunt, 2009 pp. 5).

Returns on the mergers differ from company to company, with value firms reporting higher returns on average compared to growth firms (Frankel, 2005, pp. 153). The variations in returns on the mergers result from varying degrees of risks, and investor forecasts in relation to previous company performance. Similarly, the researchers attribute differences in company profitability following the mergers to different accounting and reporting practices, and the variation in industrial shock waves necessitating the mergers.

Identifying the actual benefits resulting from mergers is challenging, since it is difficult to identify underlying sources of gains from mergers, and studies suggest that all benefits associated with the mergers accrue to the target firm shareholders (Andrade, Mark and Erik, 2001 pp. 106). As such, it would be difficult to establish the actual benefits resulting from mergers.

Companies form mergers to increase their competitiveness by accessing a wider market, new skills, and technologies. With globalization, it is extremely difficult for a pharmaceutical company to succeed on its own. By forming mergers, companies can access new markets, new products, and extra finances.

However, mergers are not always successful unless both parties are benefitting. An effective merger must ensure that both parties derive benefits from it. Once a company enters into a merger, it may loose its sovereignty. This means that the company cannot get out of the merger in the future even if it has resolved its financial difficulties. It is therefore important to maintain independence so that if the merger fails to succeed, the companies can part ways and continue their operations as independent companies.

Negotiators must always act in the best interest of the shareholders because it is their responsibility to ensure that they maximize the profits of the shareholders. If only one party is benefitting, the losing party should then not sign the deal. The parties should instead go back to the negotiating table and create a deal that increases the net value of both parties.

The most general reason for the success of merger and acquisition is that many firms try to overcome concentration risk. Firms, which are excessively dependent on a single product, are exposed to the risk of the market for that product. Diversification by way of merger and acquisition reduces such risk.

In addition, firms often use merger and acquisition as a strategy to enter into new market or a new territory. This gives them ready platform on which they can further build their operations. Tax shield is one another aspect of consideration. Tax shields play an important role.

Firms in distress have accumulating past losses and unclaimed depreciation benefits on their books. A profit making taxpaying firm can derive benefit from these tax shields. They can reduce or eliminate their tax liability by benefiting from a merger of these firms. In some countries, tax laws do not permit passing of such tax shields to the acquiring firm except under specific circumstances (DePamphilis, 2009).

From the case, the merger was meant to provide market for their products. The Executive Vice President, Sales & Marketing believed that a merger was going to open up new markets that are in the managed health care market. Medco’s had kept marketing database which was going to be used to l create market expansion opportunities.

However, the Chief Operating Officer did not consider benefits but thought of effects of cultural and operational differences. The merger was the right strategy because it would solve the problems that the two companies were facing. Merging the two companies would create a company that transcended national borders thus increasing sales. A merger is the most efficient way to enter a new market or increase distribution line.

The company can respond to competitive cost pressures through economies of scale. For Merck & Company, the merger would reduce marketing cost by $1billion and expand sales while Medco would be able to penetrate the American market and gain financial support. However, the merger failed to materialize because the two companies could not agree on the terms of control.

Merger is an important business approach that is directed towards expanding the business (Gugler, Mueller, Yurtoglu and Zulehner, 2003). Merger may help an organization to increase its monopoly power on one hand, through increasing its economies of scale and scope and on the other, it may complicate its operational procedure and destroy inter and intra departmental harmony through increasing its size beyond manageable level.

Actually, merger is not a mathematical cloth that will always yield two by the summation of two one. Success of merger depends upon extreme managerial proficiency, nature of the product and market as well as the customer’s psychology immediately after the merger.

It has been observed that in financial sector, when two banks merge, the credit deposit ratio incurs a set back. It might affect the rate of profit negatively. Therefore, it may be concluded that the outcome of merger is always uncertain and if it fails to generate substantial positive outcome, the stockholders of the respective organization might suffer a loss.

The merger agreement was expected to provide an opportunity to Merck & Company to increase market share in the industry as a leader and the highest revenue earner and with the highest market capitalization. Market growth was a major ground behind this acquisition the company wanted to ensure an increasing share in the managed care. This will ensure the growth of company earnings. There may be elimination of overlapping management and consolidation of business support functions.

The benefits of the merger are witnessed through the company’s ability to adjust to market demands and the large market share attained through the merger. In the long term, the merger is likely to be beneficial to the companies due to the increment in revenues and overall cost saving.

Merging makes it cheaper for companies to access materials from suppliers, and can get such materials at a discount due to the economies of scale. This is beneficial in the long-term performance of the company since it leads to more savings, hence more investment and overall increased profitability.

The benefits of mergers are usually traced to shareholders and company performance, and these are derived from the value of shares. The merger turned company into one of the largest employers and is expected to increase the company’s revenue both in the short term and in the long term.

Following the positive changes in the company’s share value, the merger supports the existing literature on the claim that mergers increase shareholder value and company profitability. Additionally, the merger follows the observation that investors use a company’s previous performance record to predict a merger’s future performance (DePamphilis, 2009).

When a firm trades its stock for the shares of another firm, the number of shares of the acquiring firm must be determined. The first requirement, of course, is that of the acquiring company have sufficient authorized and unissued and/or treasury stock ordered to complete the transaction. Often the repurchase of shares, is necessary in order to obtain sufficient shares for the transaction.

Since the acquiring firm is generally larger and has a market for its shares, the acquiring firm offers a certain amount for each share of the acquired firm.

This amount is generally greater than the current market price of publicly traded shares. The actual ratio of exchange is merely the ratio of the amount paid per share of the acquired firm to the market price of the acquiring firm pays the acquired firm in stock, which has a value equal to its market price. However, price has been stated of $ 6.6billion for acquisition of Medco Containment Services Incorporated.

The two companies will experience exponential growth in market share, since they end up dealing with a bigger organization than they did before. They also gain from an expanded network, which literally means dealing with more people and thus gaining more contacts with Medco’s database.

This is a good prospect for business expansion. The benefit in the long run to the shareholders is that they can gain when the merged company does grow as profit margins increase. This happens when the new firm finally settles into business and gains new ground by benefiting from the cost cutting measures.

Among the gains of the employees are that those who survive usually end up working for higher wages once the merger picks up and the gains begin to be seen. Higher pay packages are offered them, they experience, and exciting career growth provided that the merger is successful.

This offers them greater opportunities and personal development prospects than they had before. There is a better prognosis for career advancement. Promotion means handling more people over a larger scope. This increases the gains that go with career advancement (DePamphilis, 2009).

Even then, loyal consumers, especially the corporate ones are always considered when major decisions are being made. They are the ones who keep the companies going in the lean times, and with time, the companies learn that rubbing such customers the wrong way is economic suicide. Therefore, they do not emerge as losers even in a merger.

The main advantage to consumers is the improvement in quality that results from the outstanding features of each individual company’s products being consolidated into one better whole. Apart from that, the consumer benefits from wide ranging products over and above what they had in the individual company before, especially in areas where only one of the partner companies was represented.

After Merck announced intention to merge with Medco competitors reacted quickly by merging with companies, which were vertically in their supply chain. British drug maker SmithKline Beecham planned to merge with Diversified Pharmaceutical Services Incorporated, at $2.3 billion while Roche Holdings Limited announced plans acquire Syntax Corporation. One year later Eli Lilly and Company intended to acquire PCS Health Systems from McKesson Corporation for $4 billion.

Mergers may have some economies of sale and scope, it is not materialized in every case, and hence there may be failures. Again, the benefits or synergies may take some time to reflect and it is usually reflected first in the value of the combine firm as against the sum of values of independent firms. In case of acquisitions, it is important for the bidding firm, which is the combined firm after the deal is complete, to perform well and show an improvement in valuation.

Andrade, G., Mark M. and Erik S. (2001). “New Evidence and Perspectives on Mergers.” Journal of Economic Perspectives 15, no. 2 (2001): 103–120.

DePamphilis, D., (2009). Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Cases, and Solutions. London: Academic Press.

Frankel, M. (2005). Mergers and acquisitions basics: the key steps of acquisitions, divestitures, and investments. San Francisco: John Wiley and Sons.

Gugler, K., Mueller, D., Yurtoglu, B. & Zulehner, C. (2003). “The effects of mergers: an international comparison.” International Journal of Industrial Organization 21, no. 2003 (2003): 625-653.

Hunt, P. (2009). Structuring Mergers & Acquisitions: A Guide to Creating Shareholder Value. New York: Aspen Publishers Online.

Chicago (A-D)
Chicago (N-B)

IvyPanda. (2023, November 27). Merck & Co Acquisition of Medco. https://ivypanda.com/essays/mergers-and-acquisitions-3/

"Merck & Co Acquisition of Medco." IvyPanda , 27 Nov. 2023, ivypanda.com/essays/mergers-and-acquisitions-3/.

IvyPanda . (2023) 'Merck & Co Acquisition of Medco'. 27 November.

IvyPanda . 2023. "Merck & Co Acquisition of Medco." November 27, 2023. https://ivypanda.com/essays/mergers-and-acquisitions-3/.

1. IvyPanda . "Merck & Co Acquisition of Medco." November 27, 2023. https://ivypanda.com/essays/mergers-and-acquisitions-3/.

Bibliography

IvyPanda . "Merck & Co Acquisition of Medco." November 27, 2023. https://ivypanda.com/essays/mergers-and-acquisitions-3/.

Merck Company and River Blindness Case Study Ethics
Importance of Ethics in Merck
John Merck: How to Become an Entrepreneur?
Foreign Direct Investment Impacts on the Economic Development
The Content Cow Dairy Foreign Direct Investment
Saudi Arabia market' attractiveness
The Role of the International Investment in Global Trade
Marketing and Finance: Trade Effect on Brazilian Companies

ESSAY SAUCE

FOR STUDENTS : ALL THE INGREDIENTS OF A GOOD ESSAY

Essay: Mergers And Acquisitions

Essay details and download:.

Subject area(s): Business essays
Reading time: 16 minutes
Price: Free download
Published: 21 June 2012*
File format: Text
Words: 4,688 (approx)
Number of pages: 19 (approx)

Text preview of this essay:

This page of the essay has 4,688 words. Download the full version above.

Mergers And Acquisitions

The value of mergers and acquisitions remain a topical issue within the contemporary business world. Whether these activities are beneficial to the economy or are simply meant to stifle competition is open to debate. It is crucial though that when this process is put under the spotlight, one must consider the impact on shareholders, creditors, employees, management, and customers of participating companies and competing firms. It is likely that not every group mentioned will benefit from mergers and acquisitions, but a commonly accepted criterion is that the outcome is socially desirable if the benefits exceed the costs.

Several measures have been proposed for analysing the success of mergers and acquisitions. Some mergers and acquisitions simply occur because managers of the acquiring firm may want to see their corporations grow bigger so as to gain control of the company and attain monopolistic power, hubris. Further to the theoretical overview provided in the previous chapter, the literature review covers an overview on mergers and acquisitions and whether the afore-mentioned lead to the creation of shareholder value. This is done by reviewing the literature on the effects of mergers and acquisitions for both the acquiring firm and the target firm’s shareholders.The purpose of this study is to explore the field of mergers and acquisitions in South Africa with the aim of evaluating the value that these bring to the economy in terms of wealth creation.

3.2 Value of mergers and acquisitions It is difficult to make a clear conclusion on whether mergers and acquisitions lead to wealth creation for shareholders. The focus of accounting research questions whether there has been an improvement in the numbers of accounting that follow mergers and acquisitions. Evidences from prior research have been mixed with studies that provide a demonstration that merger and acquisition result in improving the profitability even though most of the studies have concluded that the merger and acquisition do not foster improvements in performance.

Theorists have illustrated that with mergers and acquisitions, there are variations in the stock or share prices of the companies involved (Bild & Guest, 2002). Bild and Guest (2002) go on to note that, within this process, the share price for the acquiring companies generally increases relative to that of the acquired company. This is an important facet to consider bearing in mind that the main role of management in business is to increase the shareholders’ wealth. Other authors have argued that the benefits of mergers and acquisitions also include combining complementary organisational resources, enhancing tax advantages, and doing away with activities that prove to be inefficient to the operations of the business (Palich & Cardinal, 2000).

Bild and Guest (2002:47) propagate that ‘the other reasons for considering growth through acquisitions include obtaining proprietary rights to products or services, increasing market power by purchasing competitors, shoring up weaknesses in key business areas, penetrating new geographic regions, or providing managers with new opportunities for career growth and advancement’. However, Tchy (2002) believes that at times the reasons behind mergers and acquisitions are overvalued and the figures that are presented during the merger or acquisition process are not necessarily a true reflection of the facts. This becomes less obscure in the long run when companies become less profitable and shareholder wealth is compromised.

Based on a financial theory perspective, Bild and Guest (2002) note that in determining the value that mergers and acquisitions bring to shareholders, it is essential that the present value of the financial gains from these activities are greater than the financial gains of the individual companies before the merger or acquisition process. This however, as most studies have shown, is not an easy feat as the exact costs of the whole process including any synergies are difficult to quantify. Previous studies also fails to provide an explicit account of the cost of the merger and acquisition, the time value of money or gains beyond a limited post-merger period (Bild & Guest, 2002).

A considerable amount of research on mergers and acquisitions exists with diversity in the findings and inconsistent evidence validating the role of mergers and acquisitions in improving firm performance. Studies conducted to review overall merger performance and to identify specific determinants of merger and acquisitions success noted that many mergers and acquisitions fail to live up to post merger expectations (Ramaswamy, 1997). The importance of understanding the factors that contribute to merger success is further explored when the researchers examined the impact of change management as one factor affecting merger outcome. Researchers also indicated that there is a need for a more in-depth investigation of conditions under which these transactions create or destroy value. This results in the possibility that a broader set of factors may influence the outcome of mergers.

Underlying merger and acquisition literature do not combine to form one base theory and consistently centers on merger motivations related to efficiency theory, agency theory and resource theory. With the considerable amount of research done on mergers and acquisitions, diversity exists in the findings with inconsistent evidence validating the role of mergers and acquisitions of improving firm performance. Due to the inconsistency the findings by Palich& Cardinal (2000) indicate that there was a need for more in-depth investigation into merger and acquisition factors that create or destroy value. The net effect of mergers and acquisitions remains unclear despite the number of research studies done.

3.2.1 Cross-border mergers and acquisitions Pehrsson (2006) summarises JP Neary’s (2003) economic model which expands beyond the standard explanations to explore motivations for cross-country mergers and acquisitions. Rationalisation of cross-border merger and acquisitions transaction requires an in-depth explanation of the cross-border aspect of the transaction. The research from Brakman, Garretsen and van Marrewijk (2001), emphasises that strategic motives is one of the key reasons that triggers most cross-border merger and acquisition deals. Buying a firm outside of one’s own sector might be motivated by an efficiency motive since it can be profitable to control a larger part of the value chain. In this instance, both motives increase profits after the take-over (Palich &Cardinal, 2000).

Additionally, Brakman et al (2001) argues that since most cross-border merger and acquisition activities belong to the category of an economic concept known as Foreign Direct Investment (FDI). Research analysing the determinants and causes of international bank mergers by Buch and DeLong (2001) concluded that economies of scale and scope is one of the major motives to increase the need and trend of international mergers. Neary (1981) studied international cross-border bank mergers between 1985 and 2005, and utilised a theoretical framework proposed by Pehrsson (2006) that categorised bidders into strategic market-asset and efficiency-seekers. As an example, Schmautzer (2006), in his framework indicates that banking mergers and acquisitions are motivated as market-seekers to aim for financial synergies through geographic diversification, motivated as asset-seekers to aim for (financial) product diversification, and motivated as efficiency-seekers to be primarily interested in operational synergies.

According to Jagersma (2005), the decision to make an acquisition is first and foremost a strategic one, and to a much lesser extent a financial one. Jagersma (2005) offered six reasons which included; economies of skills, expansion, economies of scale, market entry, geographic risk spreading and financial. Rossi and Volpin (2004) completed a study on determinants of mergers and acquisitions and focused on the differences in laws and regulations across countries. They concluded that the volume of mergers and acquisitions was significantly larger in countries with better accounting standards and stronger shareholder protection.

According to Marks and Mirvis (2001), there are many factors that can account for merger failure. These include buying the wrong company for the wrong price, executing the wrong deal structure, or even making the right deal at the wrong time. Consistent with Epstein’s observations as reported by Marks and Mirvis (2001), they observed that the primary reason for failure among mergers is a poorly designed and executed integration process. Some strategic management studies emphasise the role of management, or other social factors, such as personnel, the environment or culture.

Despite the research on failures of mergers and acquisitions, there is some evidence that cross border mergers and acquisitions are successful, and therefore do add value. For example, Armour (2002) found success in the ability to maximise shareholder value through the setting of specific and tangible goals by doubling the value of the company every four years by achieving certain profit levels. Bert et al., (2003) specified success of mergers and acquisitions as meeting or exceeding the financial analysts’ expectations by earning positive shareholder returns within the first two years after the change of control (Pehrsson, 2006). Consistent with Datta (1991), Homburg and Bucerius (2006) defined success as the new merged firms’ return on sales after the merger, as compared to the target and acquirer returns before the merger. Antoniou, Arbour and Zhao (2006), defined a successful or value-creating merger as one that exhibits forms of cash flow, margin, asset productivity, profitability and/or efficiency improvement. Furthermore, Andrade et al. (2001) indicated that when assessing performance in the context of the accounting research, success is defined as the merged company performing better than the parties would have done in the absence of the merger.

On the other hand, and as mentioned earlier, Brouthers, Hastenburg and Ven (1998) noted that since mergers have multiple motives, merger studies that measure success by examining a single financial measure of performance will undervalue goals of the merger, and hence performance may be inaccurately measured. The authors suggest that since there have not been alternative performance measures other than financial ratios or stock measures, a better indicator of performance would be the achievement or non-achievement of the predetermined objectives of the merger. Furthermore, the methodology for assessing merger success should entail the use of multiple measures of performance, such as financial and non-financial measures in order to capture the true performance of the merger (Ramaswamy, 1997).

3.2.2 Value creation with the use of key parameters According to DePamphilis (2008), merger and acquisition activities increase the value of the firms in terms of their growth. Further to that, it also has a positive impact on the profits earned by the shareholders selling around merger and acquisition announcement dates and after the trading activities occurs in the future. The merger and acquisition activities also lead to improvement in the value by increasing the long-term performance of the firms that have merged or acquired. Further studies found that in terms of value, cash deals are much cheaper than the deals occurring from the stocks of the firm. However, acquirers tend to pay excessive premiums for growth companies.

Bruner (2004) states that the valuation of the merged and acquired companies as a result of these activities, are as a result of value conserved, value created and value destroyed. Value conserved occurs as a result of merger and acquisition activities when investment returns are equal to the required returns. As a result, investors are able to get their returns before the deal occurs. Secondly, value is created as a result of merger and acquisition activities when the level of investment increases more than the amount of returns required by the investors. Similarly, the returns earned by the investors are more than their expectations even before the deal is completely implemented. On average, smaller acquirers realise higher abnormal returns than larger acquirers (Moeller, Schlingemann and Stulzrm, 2004). Thirdly, according to Bruner (2004), value destruction also occurs when the return on investment reduces the required returns amount, here the investor is unable to get the returns as expected before the deal occurs.

The impetus for businesses to pursue between a sale and a merger may involve estate planning, a need to diversify its investments, an inability to finance growth independently, or a simple need for change. In addition, some businesses find that the best way to grow and compete against larger firms is to merge with or acquire other businesses. It is important to note that for a merger to be successful and beneficial to the parties involved each side should add value so that together the two are much stronger. Smith (2006) points out that many mergers fail to work. He identifies overpaying for the acquisition as a common mistake because of an incomplete valuation model. It is thus essential to develop a complete valuation model, including analysis under different scenarios with recognition of value drivers. Only then can the value of an acquisition be better realised.

In general, value is created in a merger and acquisition when the following key parameters are addressed. These parameters determine whether the merger will improve the strategies of both companies, if there is sufficient resources allocated for integrating the two companies, if integrations takes place by design and not by chance, whether both companies have prepared for integration in advance through due diligence, if human and cultural issues are directly addressed as part of integration, and if the integration process is viewed as evolutionary with several concurrent projects going on in trying to integrate the two companies as quickly as possible (Smith, 2006). According to DePamphilis (2008), work covered by other authors on whether mergers and acquisitions create value or not, can be summarised as follows: ‘ Acquirers overpay for growth companies (excessive premium) ‘ Shareholders profit by selling around announcement dates ‘ Long-term performances of combined companies improve ‘ The method of payment affects long-term returns i.e. cash deals are cheaper than acquiring stock

3.3 Types of mergers and acquisitions Mergers and acquisitions can also be described as a consolidation of companies. In a merger, two companies combine to form a new entity, whereas during an acquisition, one company seeks to purchase another. In an acquisition, the acquiring company is making the purchase and the target company is being bought.

According to Cavallaro (2011), a merger can be statutory, where the target company is fully integrated into the acquirer and thereafter no longer exists. A merger can also be a consolidation, where two companies join to become a new company or a merger can be subsidiary, where the target company becomes a subsidiary of the acquiring company.

There are different types of mergers: horizontal, vertical, conglomerate and congeneric. In a horizontal merger, a competitor or a related business is acquired. Here the acquirer is looking to achieve cost synergies, economies of scale and gain market share. An example of this is the merger between Daimler-Benz and Chrysler. A vertical merger is an acquisition of a company along the production chain. An example here would be a car company purchasing a tyre manufacturer. In a conglomerate merger, a company completely outside of the acquirer’s scope of core operations is purchased. A congeneric merger is a type of merger where two companies are in the same or related industries but do not offer the same products (Goldsmith 2007). In a congeneric merger, the companies may share similar distribution channels providing synergies for the merger.

An acquisition is an activity where an entire takeover of the organisation takes place and one company targets to buy another company. Changes in corporate control can happen because of a hostile bid which is contested by the target’s board and management, or friendly takeover of a target company, or because of a proxy contest started by unhappy shareholders. According to Morck, Shleifer, and Vishny (1988b), there are many theories that explain why managers resist a takeover attempt. The management entrenchment theory is one such theory which suggests that managers use a variety of takeover defenses to ensure their longevity with the company. Hostile takeovers, or the threat of such takeovers, have historically been useful for maintaining good corporate governance by removing bad managers and replacing them with better ones. The shareholder interest theory is used to increase the purchase price to the benefit of the target company’s shareholders while the proxy contest theory is applied when a dissident group of shareholders attempt to gain representation on the company’s board of directors or change management proposals (Ertimur, Ferri, and Stubben 2008).

3.3.1 Friendly takeovers Under friendly takeover conditions, a negotiated agreement is possible without the acquirer resorting to aggressive tactics. Here the potential acquirer initiates an informal dialogue with the target’s top management, and the acquirer and target reach agreement on key issues early in the process. Examples of such friendly takeovers involving South African companies are: Japanese telecommunications operator Nippon Telegraph’s acquisition of South African information technology services provider Dimension Data, valued at R22-billion, and Walmart’s 51% acquisition of Massmart, valued at R16,8-billion (Polity Focus).

3.3.2 Hostile takeovers According to the Thomson Reuters database, hostile takeovers of U.S. firms peaked at about 14 percent of all takeovers in the 1980s. There are several types of hostile takeover tactics, including the bear hug, proxy contest, and tender offer. With the bear hug tactic, the acquirer mails a letter that includes an acquisition proposal to the target company’s CEO and board of directors. The letter arrives with no warning and demands a quick response, to move the board to a negotiated settlement. The bear hug also involves a public announcement as well. Directors who vote against the proposal may be subjected to lawsuits from target shareholders, especially if the offer is at a substantial premium.

In a proxy contest, dissident shareholders attempt to win representation on the board of directors. The dissidents then initiate a proxy fight to remove management due to poor corporate performance. By replacing board members, proxy contests can be won by gaining control without owning 50.1 percent of the voting stock. Instituting a proxy contest to replace a board is costly, which explains why there are so few. During the period 1996 and 2004, an average of 12 companies annually faced contested board elections (The Economist, 2006).

A hostile tender offer tactic is a deliberate effort to go around the target’s board and management to reach the target’s shareholders directly with an offer to purchase their shares. Potential bidders often purchase stock before a formal bid to accumulate stock at a price lower than the eventual offer price. Tender offers can be cash, stock, debt or some combination of the three.

According to DePamphilis (2008), there are quite a few advantages to hostile takeovers. One is that the friendly approach surrenders the element of surprise. Even a few days warning gives the target management time to take defensive action. The friendly approach allows for negotiations to raise the likelihood of a leak and that will lead to a hike in the target’s share price which would then add to the cost of the transaction. Successful hostile takeovers depend on the premium offered to target shareholders, the board’s composition and the composition and sentiment of the target’s current shareholders.

3.4 Cost of mergers and acquisitions According to Business.mapsofindia.com (2014), mergers and acquisitions are strategic business deals that are executed only after comparing its cost with the potential benefits to know the viability of the proposition. In an acquisition deal, the acquiring company estimates the cost of acquiring the other company to gauge how profitable the takeover will be in the long-run. In most instances both sides of a merger and acquisition deal will have different ideas about the worth of a potential target company. Smith (2006) point out that those sellers tend to value the company as high as possible, while the buyer will try to get the lowest price. There are, however, many legitimate ways to value companies. The most common method is to look at comparable companies within an industry however deal makers employ a variety of other methods and tools when assessing a target company.

Many methods are available to calculate the cost of mergers and acquisitions. However, the common ones are the Replacement Cost Method (RCM) and the Discounted Cash Flow Method (DCFM). The Replacement Cost Method is ideally used for manufacturing firms that have a number of by-products. These by-products like machinery, furnaces, tools, etc. can be re-used by the acquiring company in the course of business. Therefore, the total cost of the by-products is compared with the cost of replacing them with the new ones at market price to determine the profitability of the deal. However, this method is unsuitable for human resource-intensive firms.

The discounted cash flow method analysis is a key evaluation tool and determines a company’s current value in relation to its estimated future cash flows. The discounted cash flow method also discounts future cash flow projections from the newly formed company to its present value. In general this method helps evaluators determine if the deal is worth proceeding with. Decisions are taken on calculated present values of the deal depending on what the ‘acquiring’ entity considers to be beneficial.

3.5 Cash, Securities or mixed offering payment methods A company can be purchased using cash, stock or a mix of the two. Stock purchases are the most common form of acquisition. Firms have to take many factors into consideration when an offer is put together: potential presence of other bidders, the target’s payment preference, tax implications, and transaction costs if stock is issued.

The greater the perceived benefits of an acquisition as realised by management, the higher the preference for them to pay for stock in cash, (Cavallaro, 2011). This is mainly due to their belief that shares will eventually be worth more after synergies are realized from the merger. Similarly, the target company will want to be paid in stock, so that they can be partial owner in the acquirer and will also be able to benefit from the expected synergies.

When an acquirer’s shares are overvalued, management prefers to pay for the acquisition with exchange of stock-for-stock. The stocks are considered a form of currency. Since the shares are deemed to be priced higher than what they are actually worth (based on market perception, due diligence, third party analysis, etc.) the acquirer is getting more value. If the acquirer’s shares are considered undervalued, management may prefer to pay for the acquisition with cash. The payment method of choice is a major signaling effect from management. It is a sign of strength when an acquisition is paid for with cash. Stock payment reflects management’s uncertainty regarding possible synergies from a merger.

3.6 Winners and Losers in Mergers and Acquisitions According to Iabmp.org (2014), not all companies will openly embrace mergers. This creates a paradox in the process in which ultimately while there will be winners, the acquired company would be seen to be the ‘loser’. Latief (2009) points out that there are some risk factors associated with post-merger integration that companies need to consider when they are involved in merger and acquisition activities. These include the level of integration companies need to implement, the type and number of key personnel to retain as well as the kinds of conflict and competition the companies should anticipate during the integration.

The biggest disadvantage of acquisitions is that they fail because of cultural mismatches. However, the resultant of both merger and acquisition activities is increase in the stability of the companies, increase in the profitability, enhancement in the performance and lead towards growth in the entire organisation.

To illustrate the impacts of mergers and acquisitions in relation to its winners and losers, the case involving the horizontal merger transaction between AT&T and T-Mobile USA as reported by Sorkinet al (2011) is briefly discussed. AT&T announced the purchase of T-Mobile USA from Deutsche Telekom AG for $39 billion in cash and stock. AT&T and its shareholders were clear winners as the stock went up by 10% since the deal was announced. By conducting this deal, AT&T eliminated one of its large competitors in the wireless business. The losers in this case were the consumers as there was now a less choice of providers.

In April 2011, Chesapeake Energy purchased Bronco Drilling at $11 per share in a cash deal worth approx. $315 million. Bronco Drilling is a land oil driller that owns 22 rigs operating in various onshore areas of the United States. Here the winners were clearly Chesapeake Energy and its shareholders as Chesapeake paid only 6% premium on the day the deal was announced. Chesapeake also got the additional rigs to add to its Nomac Drillling subsidiary which owned 95 rigs. The losers were Bronco Drilling’s shareholders as they only received 6% premium. This is typically an example of vertical integration.

Another example is Wal-Mart’s purchase of Kosmix which is social media company in 2005. Undisclosed sources said that Wal-Mart paid Kosmix in the vicinity of $300 million. The winners in this case were clearly the two Kosmix owners. This was not their first venture as they also sold their search engine Junglee to Amazon in 1998. Although not stated, the losers in this case could be Kosmix, as the corporate culture of large companies like Wal-Mart is quite different to the smaller company.

Global merger and acquisition activities also impacted several developing and emerging countries such as in the case of South Africa, which prior to 1995 had several trade and economic sanctions as a result of race based apartheid legislation. This is further unpacked in the following section.

3.7 Mergers and Acquisitions in the South African Mining Industry The removal of economic sanctions in 1995 and South Africa’s inclusion in the global economic framework there has been a great increase in mergers and acquisitions in South Africa. This was further enhanced by Broad Based Black Economic Empowerment (BBBEE) legislation such as BBBEE Act of 2003. Figure 1 gives us an indication of the BBBEE contribution in mergers and acquisitions between 1995 and 2007.

Figure 1: BEE contribution to Mergers and Acquisitions in South Africa

Source: DTI, 2008 As mentioned in Chapter 2 (Theoretical Overview), the data included for the study concentrates on the period 2003 to 2008. This is due to the availability of data. The reason for this is because after the year 2003 merger and acquisition activities increased drastically as a result of the enhancements in the mining industry of South Africa. During the year 2003 till 2008, there are about 130 deals that took place in different markets of mining industry like in gold, platinum, coal and etc.

In the South African mining industry, the main reasons for mergers and acquisitions were driven by legislation compliance, operational and financial synergies and strategic re-alignment. In some cases, managerial pride, misevaluation and tax considerations could be the motivating factors. The reason for a merger or an acquisition is very important, as it offers clarity on purpose throughout the process of target acquisition. It would also help in clarifying the non-financial benefits and any dangers to the merger objective. The most important step in any deal process is most likely to be the post-merger integration step. This is because when companies merge, they do not only merge income statements, balance sheets and cash flows, but also people, cultures, systems and procedures, which normally take a while to integrate. The post-merger integration has a major impact on how much of the value expected is actually derived and how long it would take.

According to DePamphilis (2008), during the acquisition of Harmony, in addition to assets from the old Harmony and Evander, the company acquired assets from Randfontein, Elandskraal, Freegold and ARMgold. Within about three years between 2000 and 2003, the cultures of JCI, Anglogold and ARMgold had to be merged into the existing culture, organisational structures etc. The psychological and emotional impacts of such changes are traumatic and must be handled carefully to ensure the intended benefits are realised. Figure 2 below shows the number and value of mergers and acquisitions in South Africa during 1991 to 2013.

Figure 2: Announced Mergers and Acquisitions South Africa, 1991-2013

Source: Thomas Financial Institute of Mergers, Acquisitions and Alliances (IMAA) analysis

3.8 Conclusion The literature reviewed indicates that evidence from both the accounting-based and event studies is mixed. Whilst some suggest that mergers and acquisitions lead to the creation of shareholder wealth, others argue that mergers and acquisitions do not result in the creation of shareholder wealth. Most studies however, conclude that mergers and acquisitions do not result in shareholder wealth creation. There is a need for further research that will determine more adequate methods of studying the impact of mergers and acquisitions.

Studies have shown various reasons and factors that are considered by decision makers particularly in the mining industry when taking the decision to decide on either a merger or an acquisition while operating in the South African economy. It is anticipated that the different views that support or oppose mergers and acquisitions will form the basis on which this study will be undertaken.

...(download the rest of the essay above)

About this essay:

If you use part of this page in your own work, you need to provide a citation, as follows:

Essay Sauce, Mergers And Acquisitions . Available from:<https://www.essaysauce.com/business-essays/mergers-acquisitions/> [Accessed 10-05-24].

These Business essays have been submitted to us by students in order to help you with your studies.

* This essay may have been previously published on Essay.uk.com at an earlier date.

Merger and Acquisition (M & A) | Term Paper | Financial Management

Here is a term paper on ‘Merger and Acquisition (M & A)’ for class 9, 10, 11 and 12. Find paragraphs, long and short term papers on ‘Merger and Acquisition (M & A)’ especially written for school and college students.

Term Paper on Merger and Acquisition (M & A)

Term Paper Contents:

Term Paper on the Major Causes of Merger & Acquisition Failures

Term Paper # 1. Meaning of Merger and Acquisition:

ADVERTISEMENTS:

Merger is said to occur when two or more companies combine into one company.

Merger is defined as ‘a transaction involving two or more companies in the exchange of securities and only one company survives.’

When the shareholders of more than one company, usually two, decides to pool the resources of the companies under a common entity it is called ‘merger’.

If as a result of a merger, a new company comes into existence it is called as ‘amalgamation’.

As a result of a merger, one company survives and others lose their independent entity, it is called ‘absorption’.

Acquisition:

Acquisition is defined as “a purchase of a company or a part of it so that the acquired company is completely absorbed by the acquiring company and thereby no longer exists as a business entity”.

Takeover is considered as a form of acquisition.

Term Paper # 2. Kinds of Merger & Acquisition:

1. Horizontal M&A:

When two or more corporate firms dealing in similar lines of activity combine together then horizontal M&A takes place.

The purpose of horizontal merger is elimination or reduction in competition, putting an end to price cutting, economies of scale in production, research and development, marketing and management etc.

A horizontal M&A is one that takes place between two companies which are essentially operating in the same market.

Their products may or may not be identical.

The horizontal M&A takes place between business competitors who are manufacturing, selling, distributing the similar type of products or providing similar type of service for profit.

Horizontal M&A results in reduction of competitors in the same industry.

This type of M&A enables to derive the benefit of economies of scale and elimination of competition.

2. Vertical M&A:

When a firm acquire its ‘upstream’ from it to or firm’s ‘downstream’, then vertical merger occurs.

In the case of ‘upstream’ type of merger, it extends to the suppliers of raw materials and in case of ‘downstream’ type of merger, it extends to those firms that sell eventually to the consumer.

The purpose of such merger is the lower buying cost of materials, lower distribution costs, assured supplies and market, increasing or creating barriers to entry for potential competitors.

A vertical M&A is one in which the company expands backwards by M&A with a company supplying raw materials or expands forward in the direction of the ultimate consumer.

Thus, in a vertical M&A, there is a merging of companies engaged at different stages of the production cycle within the same industry.

3. Conglomerate M&A:

In marked contrast, conglomerate M&A is a type of combination which a firm established in one industry combines with another firm in another unrelated industry.

Such M&A moves for diversification of risk constitutes the rationale.

In a conglomerate M&A, the concerned companies are in totally unrelated lines of business.

This type of M&A involves the integration of companies entirely involved in a different set of activities, products or services.

The merging companies are neither competitors nor complementary to each other.

Term Paper # 3. Synergy in Merger & Acquisition:

If the resources of one company is capable of merging with the resources of another company effortlessly, resulting in higher productivity in both the units, it is a case of synergy.

The combined effect of two or more courses of action is greater than the sum of individual companies.

For example, if the technical manpower in one unit can exploit the modern machineries in another organization, it will be fruitful for both the organizations.

The concept of synergy can be explained symbolically as follows:

If ‘Company A’ merges with ‘Company B’, the value of merged entity called ‘Company AB’ is expected to be greater than sum of the independent values of Company A and Company B. i.e.

{V(A) + V(B)} < V(AB)

V(A) = Independent value of Company A

V(B) = Independent value of Company B

V(AB) = Value of the merged entity

The greater value is ultimately expected to result into higher earnings per share for the merged entity.

The following are the synergy in the form of financial benefits available in the case of mergers:

1. Better Credit Worthiness:

This helps the company to purchase the goods on credit, obtain bank loan and raise capital in the market easily.

2. Reduces the Cost of Capital:

The investors consider big firms as safe and hence they expect lower rate of return for the capital supplied by them. So the cost of capital reduces after the merger.

3. Increases the Debt Capacity:

After merger the earnings and cash flows become more stable than before. This increases the capacity of the company to borrow more funds.

4. Increases the P/E Ratio and Value Per Share:

The liquidity and marketability of the security increases after the merger. The growth rate, as well as, earnings of the firm will also increase due to various economies after the merged company. All these factors help the company to enjoy higher P/E in the market.

5. Low Floatation Cost:

Small companies have to spend higher percentage of the issued capital as floatation cost when compared to a big firm.

6. Raising of Capital:

After the merger, due to increase in the size of the company and better credit worthiness and reputation, the company can easily raise the capital at any time.

Term Paper # 4. Strategic Motives of Merger & Acquisition:

The strategic motives behind M&A activities are as follows:

1. Expansion and Growth:

If allowed by the government, expansion and growth through M&A is less time consuming and more cost effective.

2. Dealing with the Entry of MNCs:

Merger or joint venture is a possible strategy for survival with the arrival of MNCs. It may be difficult to beat the MNCs without strategically aligning with them.

3. Economies of Scale:

The combination of two or more companies will result in large volume of operations and it will result in economies of scale.

4. Market Penetration:

Traditionally a company might be catering to the middle-class and upper-middle class segment. Introducing a product for other market segment will be easier by acquiring a company which has a good market share in the specified segment.

5. Market Leadership:

It is not uncommon for the leading player in a market to acquire the second or third player in the market to retain the market position. With the combined additional market share, a company can afford to control the price in a better manner with a consequent increase in profitability.

6. Backward/Forward Integration:

Where supply of raw material is critical, acquiring a company producing the raw material will be an added advantage. This is a case of ‘backward integration’. Similarly, if the critical value additions are done in the subsequent stages, it may be profitable for an organization to engage in M&A activities resulting in ‘forward integration’.

7. New Product Entry:

Entering into a new product market is a time consuming effort. Companies with adequate resources will do well in new product market through M&A.

8. New Market Entry:

Advertisement and market promotion activities will be more cost effective if the organization has presence in many places. Taking away a new market from a competitor will be a costly affair. M&A may provide this advantage.

9. Surplus Resource:

To obtain additional mileage from an existing resource (be it funds, production capacity, marketing network, managerial talent) M&A might offer good potential.

10. Minimum Size:

Apart from the advantages brought about by the economies of scale, it may be required for a company to look forward to M&A just for survival. For example, investment in R&D might be crucial and the independent units may not be able to support it.

11. Risk Reduction:

In order to reduce the risk of the shareholders of the companies involved, M&A could be attempted. If the shareholder wants to reduce the risk of his portfolio, he can do so more efficiently as an individual.

12. Balancing Product Cycle:

Combining with a complementary industry to compensate for the fluctuations in a product cycle might be a good strategy. If the main product is seasonal – say ‘sugar’ – it will be beneficial to add another non-seasonal product, say ‘ceramics’, in the organization’s fold.

13. Arresting Downward Trend:

If the trend in the industry is pointing a downward trend when projected for the next five years, it is prudent to take-over the business belonging to a young and potential industry.

14. Growth and Diversification Strategy:

Many companies look for takeover or merger with a view to achieve growth, diversification and stability.

15. Refashioning:

Some companies resorted to M&T as a strategy by entering into high profile business through acquisition route, by diversifying from traditional business activity to latest technology related businesses like information technology, print media.

16. Diversification of Risk:

When a company produce single product then the company’s profits and cash flows fluctuate widely. This increase the risk of a firm. Diversification reduces the risk of the firm.

17. Reduction in Tax Liability:

The Income-tax Act provides for set off and carry forward of losses. The merger of a sick company with a profitable company will enable the profitable company to take advantage of tax benefits.

Term Paper # 5. Financial Motives of Merger & Acquisition:

1. Deployment of Surplus Funds:

The cash rich companies always look around to takeover cash strapped companies with a view to deploy surplus funds in investable projects.

2. Fund Raising Capacity:

The increase in fixed assets and current assets base will improve the fund raising capacity and more working capital finance can be sought from banks and financial institutions. The company can issue shares and other debt instruments to the public.

3. Market Capitalization:

The rise in income of target company increases the earnings per share as well as market value of the share. This will result in increase of market capitalization.

4. Tax Planning:

The provisions of the corporate Income-tax might subsidize the M&A activities and it may be possible to acquire a sick (with accumulated losses) but potential company economically.

5. Creation of Shareholder Value:

The M&A transactions are resorted to create shareholder value and wealth by optimum utilization of the resources of both companies.

6. Operating Economies:

The combinations will effect savings in overhead and other operating costs and will help in increasing the profitability of the organization.

7. Tax Benefits:

A company which has accumulated losses and unabsorbed depreciation can carry forward and offset against future taxable profits and reduce tax liabilities in amalgamating company.

8. Revival of Sick Unit:

If a viable unit becomes sick, a healthy company may like to merge with it so as to reap the benefit of the hidden potentials of the sick unit.

9. Asset Stripping:

If the market value of the shares is quoted below the true net worth of a company, it will be a target for acquisition.

10. Undervaluation of Target Company:

If the share price of target company is undervalued, the acquisition is justified. The efficiency of stock will bring in the equilibrium in share price over a period of time, after the acquisition. The acquirer will ultimately benefit from under-pricing of current share value.

11. Increasing EPS:

If the bidding company has a lower EPS as compared to its target company, the bidder can increase its overall EPS proportionally more than it has, if the share exchange ratio is 1:1. The process of increase in EPS through acquisition is called ‘boot-strapping’.

Term Paper # 6. Organizational Motives of Merger & Acquisition:

1. Superior Management:

By combining together the managerial skills are also pooled together. This will enhance the stability and increase the growth rate of both the companies.

2. Ego Satisfaction:

The money power available with the top management of big corporate houses do prompt the managers to explore the possibilities of M&A. The size of the combined enterprise satisfies the ego of the entrepreneurs and the senior managers.

3. Retention of Managerial Talent:

Human resources are considered essential and important. To assure growth to the senior management personnel in order to retain the management talent, it may be required to attempt M&A.

4. Removal of Inefficient Management:

M&A is a quick remedy to replace inefficient management from an organization which has, say, high product strength.

Term Paper # 7. Motives for Cross Border Merger & Acquisition:

There has been a substantial increase in the quantum of funds following across nations for M&A activities.

The companies go in for international acquisitions for a number of strategic or tactical reasons such as the following:

1. Growth Orientation:

To escape small home market, to extend markets served, to achieve economy of scale.

2. Access to Inputs:

To access raw materials, to ensure consistent supply of raw materials, to access technology, to access latest innovation, to access cheap and productive labour.

3. Unique Advantages:

To exploit the company’s brands, reputation, design, production and management capabilities.

4. Defensive Strategy:

To diversify across products and markets, to reduce earnings volatility, to reduce dependence on exports, to avoid home country political and economic instability, to compete with foreign competitors in their own territory, to circumvent protective trade barriers in the host country.

5. Client Needs:

To provide home country clients with service for their overseas subsidiaries e.g., banks and accountancy firms.

6. Opportunism:

To exploit temporary advantages e.g., a favourable exchange rate making cross boarder acquisition cheap.

Term Paper # 8. Tax Planning through Merger:

Under section 72A of the Income-tax Act, 1961, amalgamation results in the reduction of tax liability of amalgamated company.

The accumulated losses and unabsorbed depreciation of the amalgamating company shall be deemed to be loss (not being a loss sustained in speculation business) and depreciation of the amalgamated company for the previous year in which the amalgamation is effected.

The other tax benefits are as follows:

(i) Under section 47(vi) of the Income-tax Act, transfer of assets to the transferee company pursuant to a scheme of amalgamation is not a ‘transfer’ and does not attract capital gains tax.

(ii) Similarly, shares allotted to shareholders of the transferor company are not a transfer for attracting capital gains.

(iii) The provisions of the Income-tax Act says that acquisition of the property of the company in winding-up by another company does not amount to amalgamation.

(iv) Distribution of share of property by a company in winding-up to another company shall not be regarded as amalgamation.

(v) When the amalgamating company transfers depreciable assets to the amalgamated company, then the amalgamated company can claim depreciation on the written-down value of the transferred assets in the books of amalgamating company.

Term Paper # 9. Taxation Aspects of Takeover:

1. No special tax benefits are available in case of takeover deals.

2. By acquiring substantial voting power by the acquirer in the target company holding and subsidiary company relationship is established.

3. When the holding company sells such shares, would attract capital gains tax depending on the short- term or long-term holding period under the provisions of the Income-Tax Act, 1961.

Illustration 1:

XYZ Ltd. is intending to acquire ABC Ltd. (by merger) and the following information is available in respect of the companies:

Share to Facebook
Share to Twitter
Share to Linkedin

Merger and acquisition (M&A) activity in the global chemical industry wasn’t too inspiring in 2023. After dropping 16% compared to 2022 , global M&A transaction volumes reached their lowest level in 10 years. With headwinds that included a high interest rate environment, lackluster revenue, and earnings performance amongst industry participants, and weak demand, most chemical companies spent the year inwardly focused on cost containment and working capital improvements.

Yet, despite these trends, 86% of chemical industry executives across sectors and geographies say they are either somewhat or very likely to undertake an M&A transaction in 2024. Accelerating first quarter momentum seems to bear them out. The challenge? After a couple of years of transactional inactivity, many chemical companies will likely need to rebuild their deal-making muscles. Here are some ways to get started:

Seize the moment

After a couple years of hunkering down, chemical companies interested in riding the cresting M&A wave will need to keep a careful eye on shifting market conditions. As most chemical value chains have finish destocking, chemical production volumes may be poised to rebound. In fact, the American Chemistry Counsel (ACC) expects global chemical volumes to expand by 2.9% in 2024 , compared to 0.3% in 2023. At the same time, many private equity funds are pushing up against longer hold periods, which may drive them to bring their portfolio companies to market. This may bring higher-quality acquisition opportunities to the market just as the cost of debt comes down due to loosening monetary policy from the central banks. This confluence of factors could herald ideal conditions for transactional activity in 2024.

Chemical company executives may also want to pay attention to evolving global trends. For instance, the US still holds a significant feedstock cost advantage that makes it attractive to global chemical companies looking to increase their exposure to this low-cost production environment. In China, economic recovery is expected to spark major construction projects, boosting demand for chemical products. In Brazil, favorable economic indicators may drive higher M&A activity, with international investors already expressing interest in the country’s chemical industry. And in India, recent government policies specifically targeted at boosting the chemical industry could make local deals more attractive.

Think small

Although the chemical industry has remained resilient amid significant market turbulence, most companies have not emerged unscathed. This may explain why many are taking a constrained approach to inorganic growth, with acquisitions primarily driven by a company’s desire to expand its portfolio, technical capability, or geographic footprint. Similarly, among the chemical executives interviewed for Deloitte’s Global Chemical Industry M&A Outlook 2024 , 53% ranked small strategic acquisitions as a top-three priority, pointing to a preference for smaller tuck-ins or bolt-on acquisitions versus large transformational deals. This impulse to think small may serve the industry well as M&A deals slowly begin to resurge.

On the flip side, the tendency to play it safe has seen environmental, social, and governance (ESG) goals shifted to the backburner. Only 20% of chemical executives surveyed said their M&A strategy was driven by their corporate sustainability objectives or to desire to offer customers carbon-neutral or sustainably produced products. Chemical companies serious about helping to drive the industry’s decarbonization agenda would be well-served to consider ESG drivers when exploring new deals.

Get proactive

With chemical companies increasingly seeking out strategic M&A opportunities, the need to rebuild internal M&A skills is coming to the fore. If active deal environments tend to hone management expertise, the reverse is also true: periods of transactional inactivity can lead to lost organizational knowledge. In recent years, many internal M&A functions have dwindled down and seen their people redeployed. Rather than scrambling last minute, the time is now ripe for chemical companies to rebuild their transactional bench strength, clarify their processes, and define their strategies. Management teams planning to engage in strategic deal-making may benefit from rebuilding their internal M&A capabilities and ensuring they have access to due diligence, valuation, integration, and synergy value-capture support.

Ready for the rebound

Despite the headwinds the global chemical industry has faced, the long-term outlook for chemicals remains strong. The prevailing sentiment among industry executives backs this up, with an underlying belief that a resurgence in M&A activity is a matter of when , not if . Chemical companies interested in creating outsized returns with the right M&A moves may consequently wish to prepare by monitoring evolving market conditions across geographies, exploring smaller strategic acquisitions, and proactively rebuilding their internal M&A capabilities. Those that lay the foundation now will likely be better placed to identify and execute on synergistic deals as they emerge.

Editorial Standards
Reprints & Permissions

The Federal Register

The daily journal of the united states government, request access.

Due to aggressive automated scraping of FederalRegister.gov and eCFR.gov, programmatic access to these sites is limited to access to our extensive developer APIs.

If you are human user receiving this message, we can add your IP address to a set of IPs that can access FederalRegister.gov & eCFR.gov; complete the CAPTCHA (bot test) below and click "Request Access". This process will be necessary for each IP address you wish to access the site from, requests are valid for approximately one quarter (three months) after which the process may need to be repeated.

An official website of the United States government.

If you want to request a wider IP range, first request access for your current IP, and then use the "Site Feedback" button found in the lower left-hand side to make the request.

Election 2024
Entertainment
Newsletters
Photography
Personal Finance
AP Investigations
AP Buyline Personal Finance
AP Buyline Shopping
Press Releases
Israel-Hamas War
Russia-Ukraine War
Global elections
Asia Pacific
Latin America
Middle East
Election Results
Delegate Tracker
AP & Elections
Auto Racing
2024 Paris Olympic Games
Movie reviews
Book reviews
Personal finance
Financial Markets
Business Highlights
Financial wellness
Artificial Intelligence
Social Media

Nippon Steel delays closing of acquisition of US Steel until late this year after US DOJ request

FILE - Nippon Steel Corporation’s logo is displayed on a sign outside its headquarters in Tokyo on Nov. 26, 2021. Nippon Steel said Friday, May 3, 2024, it has postponed the expected closing of its $14.1 billion takeover of U.S. Steel by three months after the U.S. Department of Justice requested more documentation related to the deal. (AP Photo/Hiro Komae, File)

Copy Link copied

TOKYO (AP) — Nippon Steel said Friday it has postponed the expected closing of its $14.1 billion takeover of U.S. Steel by three months after the U.S. Department of Justice requested more documentation related to the deal.

Tokyo-based Nippon Steel Corp. said the deal, already approved by U.S. Steel’s shareholders, is still expected to go through.

“Nippon Steel will continue to fully cooperate with the examination of the relevant authorities,” it said in a statement.

The sale has drawn opposition from President Joe Biden’s administration on economic and national security grounds, and from former President Donald Trump, the likely Republican presidential candidate in November’s election.

The new timing could push the closing beyond the election, but Nippon Steel denied the delay was related to that.

Initially the deal was supposed to have closed by September. Now it will close by December, meaning it could still close as early as September, according to a company spokesperson, who requested the anonymity customary at Japanese companies.

More than 98% of the Pittsburgh-based U.S. Steel Corp. shares voted at a special investor meeting in April approved the takeover. Nippon Steel has said it has prepared adequate financing to go through with the deal.

FILE - An FBI seal is seen on a wall on Aug. 10, 2022, in Omaha, Neb. A senior FBI official says the agency is concerned by the potential that foreign adversaries could deploy artificial intelligence as a way to interfere in American elections and spread disinformation. (AP Photo/Charlie Neibergall, File)

First announced in December last year , the merger of U.S. Steel into Nippon Steel has raised concerns about what that might mean for unionized workers, supply chains and U.S. national security.

What to know about the 2024 Election

Democracy: American democracy has overcome big stress tests since 2020. More challenges lie ahead in 2024.
AP’s Role: The Associated Press is the most trusted source of information on election night, with a history of accuracy dating to 1848. Learn more.
Read the latest: Follow AP’s complete coverage of this year’s election.

The United Steelworkers union has opposed the acquisition.

Japanese Prime Minister Fumio Kishida met Biden last month. But there was no indication the topic came up in the summit.

When Biden visited the Pittsburgh headquarters of United Steelworkers recently, he reiterated his opposition to the Nippon Steel purchase, stressing U.S. Steel “has been an iconic American company for more than a century and it should remain totally American.”

The U.S. steel industry has declined over the decades as global steel production came to be dominated initially by Japan, and more recently by China. Under the deal, U.S. Steel will keep its name and its headquarters in Pittsburgh, where it was founded in 1901.

Yuri Kageyama is on X: https://twitter.com/yurikageyama

Altman-Backed Nuclear Developer’s SPAC Merger Wins Approval (1)

By Bailey Lipschultz

A developer of advanced nuclear systems backed by Sam Altman won investor approval to go public via a blank-check deal, sounding a rare positive note for the moribund SPAC market.

Oklo Inc. , which counts the OpenAI Inc. chief executive officer as its chairman, is expected to close the deal on Thursday and debut on the New York Stock Exchange on Friday under the symbol OKLO, according to a statement . The combination with AltC Acquisition Corp. , a special-purpose acquisition company backed by Altman and veteran dealmaker Michael Klein , valued Oklo at $850 million when the agreement was ...

Learn more about Bloomberg Law or Log In to keep reading:

Learn about bloomberg law.

AI-powered legal analytics, workflow tools and premium legal & business news.

Already a subscriber?

IMAGES

Merger Agreement Templates
What Is Merger, Recapitalization and Acquisition Free Essay Example
Mergers and acquisitions
Term-4 Mid Term Question Papers 2 .pdf
Business Merger Proposal Template
(PDF) Merger and Acqusition Paper

VIDEO

Mergers and Acquisition of Companies
2.1 MERGERS & ACQUISITION OF COMPANIES
Merger and Acquisition (M&A) Process Explained
MERGER & ACQUISITION FOR CA FINAL SFM BY CA PRAVIIN MAHAJAN
Merger और Acquisition से शेयर पर असर । merger and acquisition
A LEVEL ACCOUNTING PAST PAPER MAY JUNE 2023 / PAPER 3 ; VARIANT 31 & 33 ; 9706; QUESTION 1

COMMENTS

(PDF) Mergers and Acquisitions: A Research Overview
Mergers and Acquisitions. The process of identifying and evaluating a tar get ﬁ rm, completing a deal. after its negotiation and announcement, and then integrating a target ﬁ rm after. legal ...
Merger & Acquisitions (M&As) as an important strategic vehicle in
Merger and acquisition (M&A) have become a foremost strategic alliance for business, product and geographic tactics in global market. Using meta-literature review, we conduct a synthesis analysis on M&A to assess motives, methods, financing sources, announcement effects, cross-border competitions, success-failure, valuation issues, and business strategies.
Essays on Mergers and Acquisitions
This dissertation includes two essays that examine mergers and acquisitions. In the first essay we examine how pay-for-performance influences the quality of merger decisions before and after Sarbanes-Oxley (SOX). Pay-for performance has a significant positive effect on acquirer returns of 0.9% pre-SOX and 1.1% post-SOX around the three day ...
Mergers and acquisitions research: Time for a theory rejuvenation of
Mergers and acquisitions (M&A) are a very persistent global phenomenon, dating back centuries, and extending across most countries of the world. They have experienced an unprecedented increase over the last decades by volume and value, with total number of deals in 2021 standing at 57,948 with a value of $5.2 trillion. 1 Since the year 2000 ...
Essays on Mergers & Acquisitions and Innovation
Essay 2 enriches the modeling approach for merger partner selection in essay 1. I use a game-theoretic matching model and study the impact of matching on merger performance. With a Bayesian estimation method, I apply the model to 1895 mergers in five high-tech industries that occurred between 1992 and 2008. I find that the
(PDF) Mergers and acquisitions: A review of phases, motives, and
Mergers and acquisitions: A review of phases, motives, and success factors. December 2010. Advances in Mergers and Acquisitions 9:1-24. DOI: 10.1108/S1479-361X (2010)0000009004. Authors: Rachel ...
PDF THREE ESSAYS ON MERGERS AND ACQUISITIONS
This thesis consists of three independent essays on merger and acquisition (M&A) in the U.S. capital market. The first essay explores how the social tie with the acquirer's investment bank advisor influences the acquisition performance of the acquirer and the target. The second essay reconciles the behavioral theory and the rational theory of
PDF A Literature Review on Mergers and Acquisitions
Part I: Types of Mergers and Acquisitions Three types of mergers and acquisitions will be discussed in this part, namely, horizontal M&As, vertical M&As, and cross-border M&As. Each chapter will first provide the definition of the specific type of M&A, followed by several findings of existing academic literature. A: Horizontal Mergers and ...
Overview of Mergers and Acquisitions
Mergers & Acquisitions are a means of creating shareholder value by exploiting synergies, increasing growth, replacing inefficient managers, gaining market power, and extracting benefits from financial and operational restructuring. However, for value to be created, the benefits of these motives must exceed the costs.
PDF Essays on Mergers and Acquisitions
Mergers and acquisitions (M&As) exhibit intense agency conﬂicts. Though M&As are the largest ﬁrm investments, they generate slightly positive returns for acquiring share-holders at best (e.g., Andrade, Mitchell, and Stafford, 2001; Betton, Eckbo, and Thorburn, 2008, 2009). Managerial incentives to pursue private beneﬁts are believed to be ...
How M&A Can Affect a Company
The term mergers and acquisitions (M&A) refers to the consolidation of companies or their major assets through financial transactions between companies. more Acquisition Indigestion: Examples, Why ...
Essays on Merger and Acquisition Activity and Implications Thereof
overall merger and acquisition activity. The first essay examines how serving as trustee of a sponsor firm's 401(k) assets alters the incentives of mutual fund companies to monitor firm behavior. The author uses the M&A decisions of firms to reveal the governance effort of mutual fund families serving as trustee. Over a sample of acquisitions
(PDF) The Impact of Merger and Acquisition on Value Creation: An
Abstract. The aim of this paper is to examine the impact of post merger and acquisitions on value creation. The paper also analyses the impact of lagged synergy (a proxy of sales growth) on the ...
Mergers and Acquisitions: a Review of The Literature
This paper is a selected literature review of the theories and empirical evidence on mergers and acquisitions. Initially, the fundamental factors, and the underlying theories, causing mergers is explored. Subsequently, the empirical evidence is examined on: (1) the operating performance of the acquirers and the acquired firms before and after the merger, (2) stockholder wealth impact, (3) form ...
Impact of Mergers and Acquisitions on Shareholders' Wealth in the Short
The present study attempts to evaluate the impact of mergers and acquisitions on the returns in the short run using detailed event study methodology. The notable finding of the research is that a market starts reacting prior to the announcement. The moment the announcement information becomes public, investors start reacting and the stock price ...
"Essays on Mergers and Acquisitions" by Marcin Krolikowski
This dissertation includes two essays that examine mergers and acquisitions. In the first essay we examine how pay-for-performance influences the quality of merger decisions before and after Sarbanes-Oxley (SOX). Pay-for performance has a significant positive effect on acquirer returns of 0.9% pre-SOX and 1.1% post-SOX around the three day event window.
Key Terms in Mergers and Acquisitions
Acquisition. When one company (the " buyer " ) purchases a second, usually smaller, company (the " target " ); the second company ceases to exist and the assets of the target are then controlled by the buyer. The employees of the target now work for the buyer (excepting those employees fi red as part of the acquisition process).
PDF Cross-Border Mergers and Acquisitions
2 See Netter, Stegemoller, and Wintoki (2011) and Erel, Liao, and Weisbach (2012) for more on this point. composition of the cross-border deals in our sample of 48 countries. The top industries in terms of. the total number of cross-border deals are business equipment (with over 20,000 acquisitions) and.
Mergers and Acquisitions (M&A): Types, Structures, Valuations
Mergers and Acquisitions - M&A: Mergers and acquisitions (M&A) is a general term that refers to the consolidation of companies or assets. M&A can include a number of different transactions, such ...
Mergers and Acquisitions
Companies form mergers to increase their competitiveness by accessing a wider market, new skills, and technologies. With globalization, it is extremely difficult for a pharmaceutical company to succeed on its own. By forming mergers, companies can access new markets, new products, and extra finances.
[PDF] Mergers and Acquisitions Performance Evaluation-A Literature
Mergers and Acquisitions (M&A) have received a lot of public attention during the past decade as several major M&A transactions have been affected. The Asia-Pacific region experienced significant growth in deal volume and value. The number of Asia-Pacific deals has increased from 2091 transactions in the year 2000 to 6,939 in 2011.The aggregate deal value jumped 103%, from $193.4 billion to ...
Mergers And Acquisitions
Mergers and acquisitions can also be described as a consolidation of companies. In a merger, two companies combine to form a new entity, whereas during an acquisition, one company seeks to purchase another. In an acquisition, the acquiring company is making the purchase and the target company is being bought.
Merger and Acquisition (M & A)
Raising of Capital: After the merger, due to increase in the size of the company and better credit worthiness and reputation, the company can easily raise the capital at any time. Term Paper # 4. Strategic Motives of Merger & Acquisition: The strategic motives behind M&A activities are as follows: 1.
In The Mergers And Acquisitions World, Culture Is King
In mergers and acquisitions, a seamless transition to a combined company is the ultimate goal. While executives need to be focused on many of the critical facets of a merger—a combined ...
Ready Or Not: Global Chemical Industry Executives May Need To Get
Merger and acquisition (M&A) activity in the global chemical industry wasn't too inspiring in 2023. After dropping 16% compared to 2022, global M&A transaction volumes reached their lowest level ...
Novo, Catalent Deal Set to Underpin FTC Vertical Merger Scrutiny
A bid by the owner of Wegovy maker Novo Nordisk A/S to buy a key manufacturer presents an opening for the US Federal Trade Commission to take action against vertical mergers and pharmaceutical industry consolidation.. The FTC last week requested more information about Novo Holdings A/S's proposed $16.5 billion acquisition of Catalent Inc. —a step that could lead to a formal antitrust ...
Formations of, Acquisitions by, and Mergers of Bank Holding Companies
Start Preamble. The companies listed in this notice have applied to the Board for approval, pursuant to the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.) (BHC Act), Regulation Y (12 CFR part 225), and all other applicable statutes and regulations to become a bank holding company and/or to acquire the assets or the ownership of, control of, or the power to vote shares of a bank or ...
Nippon Steel delays closing of acquisition of US Steel until late this
TOKYO (AP) — Nippon Steel said Friday it has postponed the expected closing of its $14.1 billion takeover of U.S. Steel by three months after the U.S. Department of Justice requested more documentation related to the deal.. Tokyo-based Nippon Steel Corp. said the deal, already approved by U.S. Steel's shareholders, is still expected to go through.
Sony Plans Bid Versus Blackstone, KKR for $1.3 Billion Manga App
Sony Music Entertainment is preparing a bid against private equity funds Blackstone Inc.and KKR & Co. to acquire Japanese e-comics provider Infocom Corp. in a deal estimated to be worth around ¥200 billion ($1.3 billion).
Altman-Backed Nuclear Developer's SPAC Merger Wins Approval (1)
Mergers & Acquisitions. Print Email. Share To: Facebook. LinkedIn. May 7, 2024, 8:49 PM UTC. Altman-Backed Nuclear Developer's SPAC Merger Wins Approval (1) ... 54d3-d4b6-a98f-f5f705020004","_type":"00000160-4b23-d8bd-adfd-4b3348fd0000"}">AltC Acquisition Corp., a special-purpose acquisition company backed by Altman and veteran dealmaker -bsp ...