MERGERS & OTHER BUSINESS COMBINATIONS Consolidations, Mergers & Holding Company

Result of an agreement between 2 or more companies to join their operations together MERGERS Occurs when two (or more) corporations combine to create an entirely new corporate entity. None of the company survive. CONSOLIDATION / ACQUISITION A holding company is a firm that owns sufficient voting stock in one or more other companies so as to have effective control over them DEFINITIONS HOLDING COMPANY

WHY MERGERS AND ACQUISITIONS To gain new technology Grow revenue Market Share Strategic assets

TYPES OF MERGERS Occurs between firms that have related business interests Occurs between firms that have related business interests Congenric Mergers Horizontal Vertical Combination of two firms engaged in the same business When a company merge with its Suppliers UpstreamDownstream When a company merge with its Product distributors or customers

EXAMPLES HP and Compaq HP and Compaq Congenric Mergers Horizontal Vertical Time Warner Incorporated, a major cable operation, and the Turner Corporation, which produces CNN, TBS UpstreamDownstream K & N’s Daimler-Benz and Chrysler

TYPES OF MERGERS These mergers combine when unrelated businesses combine CONLOMERATE Sony Sony, which had previously been primarily in the consumer electronics manufacturing business, moved into the media industry through a series of conglomerate mergers. In 1989, Sony merged with American film and television production corporation Columbia Pictures Entertainment Inc., made up of Columbia Pictures and Tristar Pictures, from Coca-Cola for $3.4 billion. In 1991, the new company became Sony's key media division.

CONGENRIC MERGER Advantages New Vision Modificat ion of input Employm ent opportun ity Diversific ations in operation s Ability to compete Diversific ation in Skills Market Share Cost reduction Capital Resource Disadvantages Communi cation gap may arise Cultural Fit Good will affected Customer may become dis-loyal Employee Lay off Manage ment Conflicts

Failure Merger HP and Compaq In 2001, struggling computing giant Hewlett Packard announced it would merge with similarly struggling competitor Compaq. The merger was ill-fated from the start, as critics pointed out how the HP engineering-driven culture was based on consensus and the sales-driven Compaq culture on rapid decision making. This poor cultural fit resulted in years of bitter infighting in the new company, and resulted in a loss of an estimated 13 billion dollars in market capitalization. Though the merger itself was widely regarded a s a failure, the company has hung on, and has been able to make significant cultural and leadership changes that have resulted in long-term success.

HOLDING COMPANY The company has stakes in the fertilizer, food, power generation, petrochemicals, automation and terminal storage industries. Controlling interest is the principal advantage of holding companies

HOW A MERGER IS EFFECTED How merger is effected Friendly Take Over Purchase of assets Purchase the stock Hostile Takeover Tender offerProxy Fight

OTHER FORMS OF CORPORATE RESTRUCTURING Sell-Off Spin- offs Going Private Liquidat ions

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