MERGERS AND TAKEOVERS

Integration of companies e.g.  Oil-wells  Electricity generators  Car dealers  Gas (petrol) stations  Subcontractors (component suppliers)  Car makers  Refineries  Electricity distributors

Examples of different types of integration:  oil wells  refineries  petrol stations  component suppliers  car makers  car dealers  car maker A + car maker B  refineries + electricity generators

Different types of integration  Vertical integration (supplier- company– customer)  Horizontal integration (competitors)  Conglomerate (comp. with no common business areas) Integration of core businesses or non-core business diversification (to diversify) Make or buy decision

On what conditions do companies get together? Sony Ericsson, a 50:50 joint venture of Sony Corporation and Ericsson AB, was established in October 2001.

How can companies get together? Daimler-Benz merged with Chrysler. (The Daimler-Chrysler merger)

How can companies get together?  Ford took over Volvo Automotive Operations in 1999.

How can companies get together?  Joint ventures  Mergers  Takeovers/acquisitions (friendly takeovers or hostile takeovers) *takeover, (n.), take over (v.) acquisition (n.), acquire (v.) merger (n.), merge (v.)

Talking about M&A General Oil and PP have announced they are going to merge. It will be the biggest ever merger in the oil industry. CF, the French building group is to acquire RSI for 3.1bn euros. CF made a friendly bid to RSI, as RSI are likely to welcome it and agree to it. But the takeover comes only a year after RSI rejected a hostile bid, an unwanted one.

Fill in the missing words: merger, black knight, white knight, gray knight, takeover (acquisition), poison pill (Source: Investopedia) 1.Basically, when two companies become one. This decision is usually mutual between both firms. 2.A strategy used by corporations to discourage a hostile takeover by another company. The target company attempts to make its stock less attractive to the acquirer, e.g. by allowing existing shareholders (except the acquirer) to buy more shares at a discount or to buy the acquirer's shares at a discount. 3.A company that makes a friendly takeover offer to a target company that is being faced with a hostile takeover 4.A second bidder in a corporate takeover which enters the scene in order to take advantage of any problems between the first bidder and the target company. 5.The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. 6.When one company purchases a majority interest in another company. 7.A company that makes a hostile takeover offer.

Key:merger, black knight, white knight, gray (grey) knight, takeover (acquisition), poison pill 1.Basically, when two companies become one. This decision is usually mutual between both firms. MERGER 2.A strategy used by corporations to discourage a hostile takeover by another company. The target company attempts to make its stock less attractive to the acquirer, e.g. by allowing existing shareholders (except the acquirer) to buy more shares at a discount or to buy to buy the acquirer's shares at a discount. POISON PILL 3.A company that makes a friendly takeover offer to a target company that is being faced with a hostile takeover WHITE KNIGHT 4.A second bidder in a corporate takeover which enters the scene in order to take advantage of any problems between the first bidder and the target company. GRAY KNIGHT 5.The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. MERGER 6.When one company purchases a majority interest in another company. ACQUISITION 7.A company that makes a hostile takeover offer. BLACK KNIGHT

Speak about these companies....

Use some of the words below to retell the story of Pliva in Add the following: go for a friendly takeover /go for a hostile takeover make a friendly bid /make a hostile bid  Abbot Bank is doing badly and may become the victim of a predator. There were rumours of a possible takeover by Bullion, but it says it won’t play the white knight for Abbot by coming to its defence. This leaves Abbot exposed to acquisition, and it may be prey to a big international bank. Abbot does have a poison pill however, in the form of a special class of shares that will be very expensive for a predator to buy.

If no synergy, ….

...companies can split.  conglomerates → divestment/sell-off?  demerger (n.), demerge (v.)

...companies can split.  Recent strategic thinking holds that conglomerates are not good. Many conglomerates have divested their non-core businesses, selling them off in order to concentrate on their core business.  Blighty Telecom is to split into two, and demerge its fixed-line and mobile business.

A few more words on M&A MK, p.105 Pg.1: Reasons for M&A Pg.2: Raiders and takeover bids (raid, controlling interest, friendly/hostile) Pg.3: Who else gets involved in M&A? Pg.4: Describe LBO (undervalued, borrow, buy, sell off, pay back). Explain the following: backward/forward integration, controlling interest, fee, private equity funds, synergy, subsidiaries, asset stripping.