DOING BUSINESS IN EUROPE, ASIA AND AMERICA

Doing business in Europe, Asia and America

Doing business in Europe, Asia and America

About Mergers and Acquisitions

A better way for a firm to grow is by purchasing or going a joint venture with another company. Acquiring one company by another is called a merger. Merger and Acquisition are same terms with different meanings, but the term Merger is usually used in reference to a large corporation's purchases of other corporations. Even many acquisitions and are friendly, hostile takeover still take place. Hostile takeover is a situation when management and board of directors of a firm targeted for an acquisition when disapprove of the merger is put forward.

In a hostile merger or acquisition, a corporate raider (another company or a wealthy investor) make an offer or a tender offer or start a proxy fight to gain control. Tender offer is term as a purchase of stocks of a targeted firm high enough to tempt stockholders to sell shares. A proxy fight is a technique used to gather enough stockholder votes to control a targeted company.

If the corporate raider is successful and takes over the targeted company, existing, management usually is replaced. Faced with this probability, existing management may take specific actions known as “poison pills,” or “porcupine provisions” to maintain control of the firm and avoid the hostile takeover. Whether mergers are friendly or aggressive they are generally classified as horizontal, vertical or conglomerate.

Horizontal Mergers

A merger that refers to a company with a same business such as selling similar products or services is a horizontal merger. The merger between Bank of America and Merrill Lynch is an example of a horizontal merger because both firms are in the financial services and banking industry. Merger of this sort tends to trim down the number of firms which in turn reduces competition.

Vertical Mergers

In this type of merger, one of the merging firms is either a supplier or a customer of the other. A vertical merger occurred when IBM acquired WebDialogs. At the time of the merger, WebDialogs, a privately held company, was a leading provider of Web conferencing services. At the same time, IBM needed this type of technology to enable companies of any size to use web conferencing services. Rather than develop its own Web conferencing services, IBM simply purchased the WebDialogs Company.

Conglomerate Mergers

A merger which takes place between companies of completely different business industry is known as conglomerate merger. One of the largest conglomerate mergers in recent history occurred when Hewlett-Packard (computer hardware and software) merged with EDS (information services). While both companies were recognized as successful companies that have a history of increasing sales revenue and profits, they operate in different industries.

Current Merger Trends

One thing is clear however; there are two sides to takeover question. Takeover advocates argue that for companies that have been take over, the purchases have been able to make the company more profitable and productive by installing a new top management team by reducing expenses, and by forcing the ...