TAKEOVERS MK, UNIT 21

MERGER OR TAKEOVER (ACQUISITION)? MERGER  two or more companies join together to form a larger company (mutual decision of two equals)  Can cut costs and boost profit TAKEOVER  one company buys another one, usually much bigger one, or buys a part of another one  Benefits are the same as in a merger but it is not necessarily a mutual decision by both companies

SUCCESSFUL MERGERS Disney-Pixar ( Mickey and Nemo, Pinnochio and Toy Story, Cinderella and Cars) Pixar has plans for twice-yearly films, unthinkable before the merger, and has certainly gained the expert advice from Disney when it comes to advertising, marketing and merchandising

Exxon-Mobil Big oil got even bigger in 1999, when Exxon and Mobil signed a $81 billion agreement to merge and form ExxonMobil Today, it is the strongest leader in the oil market In 2008, ExxonMobil occupied all ten spots in the “Top Ten Corporate Quarterly Earnings” -$11 billion in one quarter)

FAILED MERGERS Daimler Benz /Chrysler 1998 – merger 2007 – end Daimler Benz sold Chrysler to the Cerberus Capital Management firm which specializes in restructuring troubled companies, for a mere $7 billion

AOL / Time Warner In 2001, old-school media giant Time Warner consolidated with American Online (AOL), the Internet and provider of the people, for $111 billion. It was considered the combining of the best of both worlds: print and electronic But the synergy of these two dynamically different companies never ocurred Since the merger, Time Warner’s stock has dropped 80% Recently, Time Warner, Jeff Bewkes, has announced that the marriage of AOL and Time Warner was dissolved

SUCCESSFUL TAKEOVER YouTube and Google 2006 – the acquisition of YouTube by Google YouTube now generates annual revenues for Google of $3.6bn per year Even a conservative valuation of times annual profit suggests that YouTube is now worth between $10-15 bn – significantly more than the $1.6bn Google originally paid

MERGER OR TAKEOVER (ACQUISITION)? MERGER two or more companies join together to form a larger company TAKEOVER one company buys another one, or buys a part of another one

HOSTILE OR FRIENDLY TAKEOVER? FRIENDLY TAKEOVER a takeover that a company being taken over agrees to HOSTILE TAKEOVER a takeover that a company taken over does not want and doesn’t agree to

A RAID OR A TAKEOVER BID? A RAID buying a company’s stocks on the stock market A TAKEOVER BID making an offer to a company’s stockholders to buy their stocks

Watch and answer : 1. Which two techniques can be used to take over the company whose management does not agree to be taken over by another ?

HORIZONTAL OR VERTICAL INTEGRATION? HORIZONTAL INTEGRATION acquiring a competitor in the same field of activity VERTICAL INTEGRATION acquiring a business in other parts of supply chain

HORIZONTAL MERGER Horizontal mergers enable the resulting company to __________ more products and ___________ revenue, along with _____________ technology and proprietary rights. It can also ______:__ new markets and _____________ economies of scale in production.

VERTICAL MERGER Vertical mergers offer companies better ______________ over their production process, which, ideally, cuts ___________ and leads to greater _______________. It also reduces _______________ upon outside ___________________, ensuring that supplies will be ready when needed.

IF VERTICAL, IS IT BACKWARD OR FORWARD INTEGRATION…? BACKWARD INTEGRATION buying suppliers of raw materials or components FORWARD INTEGRATION buying distributors or retailers

IS IT A LEVERAGED BUYOUT? LBO  a person or company buys a company using a loan borrowed against the company’s assets; these assets can then be sold to pay off the debt

IS IT ASSET STRIPPING? ASSET STRIPPING  a type of hostile takeover, often called breaking the company, in which assets are immediately sold off

WHY MERGERS AND TAKEOVERS? → to Add Shareholder Value through:  economies of scale  increased revenue/increased market share  Synergy  broadened diversification

READING, Mk, p.105 P1 How to use profits? Who is the target company in horizontal integration? When do mergers occur? Why is vertical integration done ?

P2 What does a raid usually cause? What do companies launch when they want to acquire a controlling interest in the target company? What makes a takeover friendly or hostile?

P3 What is the role of banks in M&As? P4 How is a LBO connected with conglomerates?

P5 How do raiders actually earn money in LBOs? P6 How are modern private equity funds connected with LBOs? Vocabulary Comprehension

Find questions to the following answers: MK, p Companies develop new products and services, diversify and enter new markets or take over other companies. 2.To have a larger market share and to reduce competition. 3.Acquiring a competitor in the same field of activity. 4.Combining two companies to form a single new one. 5.Acquiring a business involved in other parts of their supply chain. 6.Acquiring suppliers of raw materials or components. 7.Buying distributors or retail outlets.

8. Acquiring part-ownership of a company by buying as many of a company’s stocks as possible on the stock market. 9.A public offer to a company’s stockholders to buy their stocks at a certain price during a limited period of time. 10.A BoD agrees to a takeover. 11.A BoD doesn’t agree to a takeover. 12.It’s a huge group of smaller companies selling different products or services. 13.When the conglomerate’s market capitalization is lower than the value of its total assets, including land, buildings, pension funds.

13. It means largely financied by borrowed capital. 14. By issuing bonds. 15. Selling off subsidiaries or closing them and selling the assets.