1. CAN YOU GUESS THE TOPIC?

7. TAKEOVERS, MERGERS AND BUYOUTS
UNIT 21

8. WHAT DO YOU THINK? Why do companies take over other companies?
How do companies take over other companies?
What is a merger?
Have there been any big takeovers or mergers in the news recently?
Why do you think they happened?

9. WHAT DO YOU KNOW ABOUT SOME RECENT EXAMPLES OF TAKEOVERS AND MERGERS?

11. WHAT ABOUT THIS TYPE OF TAKEOVER?
...the act of inviting someone to take over your account for
a period of time in order to reach new audiences, increase
engagement, build your brand or drive web traffic.

12. INTRODUCTION Successful companies make a lot of money, which
sooner or later has to be spent.
VARIOUS POSSIBILITIES:
☺ to invest it all in R&D – innovation and diversification
(if successful → leads to even greater cash returns)
☺ to spend money by acquiring other companies → suppliers, distributors, competitors or companies in unrelated fields (if successful → leads to even greater cash returns)
☺ a company can grow both by way of mergers and
acquisitions → corporate finance strategy and
management dealing

13. HOW DOES A COMPANY GROW?
higher revenue through innovation and diversification
more assets
more employees
expansion into foreign markets
mergers and acquisitions
HOW DOES A COMPANY INVEST ITS CASH RETURNS?
R&D → innovation and diversification
takeovers, mergers and acquisitions (suppliers,
distributors, retailers, companies in unrelated fields)
HOW ARE LARGE CONGLOMERATES SPLIT UP?
LEVERAGED BUYOUTS

14. ACQUISITION, TAKEOVER, HOSTILE TAKEOVER, FRIENDLY TAKEOVER, LEVERAGED BUYOUT, OR MERGER?
two or more companies join together to form a larger company
one company buys another one, or  buys part of another one
getting control of a company by buying over 50% of its shares
a takeover that a company being taken over agrees to
a takeover that a company taken  over does not want and doesn’t  agree to
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

15. WHAT’S THE ENGLISH WORD FOR…?
OTKUP PODUZEĆA UZ  ZADUŽIVANJE
NEPRIJATELJSKO PREUZIMANJE PODUZEĆA
PRIJATELJSKO PREUZIMANJE PODUZEĆA
KUPNJA, STJECANJE PODUZEĆA
PREUZIMANJE DRUŠTVA KUPNJOM VIŠE OD 50% GLASAČKIH PRAVA U DRUŠTVU
SPAJANJE DRUŠTAVA

16. READING – TAKEOVERS, MERGERS AND BUYOUTS – MK, pp. 105 & 106
PARAGRAPH 1 – 1) Why do companies take over other companies? 2) Explain the difference between horizontal and vertical integration.
3) Explain the difference between backward and forward integration.
PARAGRAPHS 2 & 3 –
1) How do companies take over other companies? 2) Explain the difference between a raid and
a takeover bid?
3) Explain the difference between a friendly and
a hostile takeover.
PARAGRAPHS 4 & 5 –
1) When do leveraged buyouts happen?
2) Explain the concept of asset-stripping?
3) How is it possible to make a profit out of
a leveraged buyout?

17. VOCABULARY – TAKEOVERS, MERGERS AND BUYOUTS – MK, p. 106
I Find the words in the text which match the explanations.
II Explain the following in your own words:
1 the difference between horizontal and vertical
integration
2 the difference between backward and forward
3 the difference between a raid and a takeover bid
4 the difference between a friendly and a hostile bid
5 asset-stripping

18. HOW DO THESE PICTURES RELATE TO LEVERAGED BUYOUTS?

19. WHAT IS THE ROLE OF LEVERAGED BUYOUTS IN THE GLOBAL ECONOMY?

20. FOOD FOR THOUGHT...
All public companies face the permanent risk of takeover bids. Is this a good thing for business?
What are the arguments in favour of and against takeovers and buyouts?

21. DEFENSIVE ACTION AGAINST TAKEOVERS
POISON PILL – an action taken by a company to make itself less attractive to a potential takeover bid or a raider (e.g. a company will borrow large amount of money and give it away to shareholders as dividends, so that a company has an unacceptably high level of borrowing)
WHITE KNIGHT – an alternative buyer that comes to rescue of a company from a threatened hostile takeover

22. MERGERS ('a merger of equals')
☺ occur in a friendly setting where executives from
the respective companies participate in a successful
combination of all parts:
HORIZONTAL – where too merging companies produce
similar product in the same industry
VERTICAL – when two firms, each working at different
stages in the production of the same good,
combine
CONGLOMERATE – when the two firms operate in
different industry
☺ all the owners of stocks of either company get the same
amount of stock in the new combined company
☺ can resemble a takeover, but result in a new company
name (often combining the names of the original
companies) and in new branding

23. ACQUISITIONS (of un-equals, one large buying one small)
can involve a cash and debt combination, or just cash
can involve a combination of cash and stock of the purchasing entity
can involve a purchase of the stock or other equity interests of the target entity
can involve a purchase of all or substantially all of its assets

24. MOTIVES BEHIND MERGERS AND ACQUISITIONS
TO ADD SHAREHOLDER VALUE
ECONOMIES OF SCALE: reducing the number of duplicate
departments → lowering costs relative to the same revenue
→ increasing profits
INCREASED REVENUE/INCREASED MARKET SHARE:
absorbing a major competitor → increasing its power (by
capturing increased market share) to set prices
SYNERGY: a better use of complementary resources
CROSS SELLING: a bank buying a stockbroker could then
sell its banking products to the stock broker’s customers,
while the broker can sign up the bank’s customers for brokerage
accounts

25. MERGERS AND ACQUISITIONS

26. MERGERS - PROBLEMS
☹ often, terming the combination a merger rather than
acquisition is done purely for POLITICAL OR MARKETING
REASONS
☹ net loss of value due to problems caused by INCOMPATIBILITY
(technology, equipment or corporate culture)
☹ CONCEALMENT OF LOSSES OR LIABILITIES at one of
the partners
☹ OVERLAPPING SUBSIDIARIES or redundant staff may continue,
creating INEFFICIENCY
☹ NEW MANAGEMENT may cut too many operations or
personnel, losing expertise and disrupting the employee
culture
☹ similar to those encountered in takeovers → if it is not to
be considered a failure, it must INCREASE SHAREHOLDER
VALUE faster than if the companies were separate

27. HOW DO THESE CARTOONS RELATE TO MERGERS?

28. HOW ABOUT THIS ONE?

29. WHAT IS THE ROLE OF MERGERS AND ACQUISITIONS WORLDWIDE?

31. MORE CARTOONS ON MERGERS AND ACQUISITIONS...

32. TAKEOVERS – PROS OR CONS?
WRITE ‘CONS’ OR ‘PROS’ IN GAPS:
______________:
Increase in Sales / Revenues (e.g. Procter & Gamble takeover of Gillette)
Venture into new businesses and markets
Profitability of target company
Increased market share
Eliminating competition
Increased efficiency
Reduced competition and choice for consumers
Likelihood of price increases and job cuts
Cultural integration/conflict with new management
Hidden liabilities of target entity

33. HOW DO THESE CARTOONS RELATE TO TAKEOVERS?