News : Lenovo eyes takeover, with IBM server unit in focus
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For Grade 8B
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New Case Studies Discuss Question
Mergers and Acquisitions helps firms to grow their size exponentially and rise their growth prospects in the national and international markets. It provide greater market access, new technologies, capital assets and above all access to new markets.
Discuss whether firms always benefits from the mergers and acquisitions.
Submit your article before
February 2nd 2014
Please Write Your Response in 500 Words
Note:
1. Write with references.
2. Present market examples in support of your reasons.
3. Marks allocation for this article is 20
Rubrics for Marks.
A. Theoretical Explanation 5 Marks
B. References. 5 Marks
C. Use of Key words. 5 Marks
D. Examples from various Markets 5 Marks
Part I
ReplyDeleteMerger is the condition where two or more (multi) companies are combined. But actually, merger is generally done by only with two companies because mostly, different companies will have different culture and systems so that it is hard to combine each other. So in merger, the owners of both companies will still be the shareholders of the merged company. While acquisition is the condition where the larger company takes over other smaller company. Generally acquisition is done when the “smaller” company is having financial problem or going bankrupt and it could be easier done than merger because the smaller company which is going bankrupt is purchased by the larger company which should obey the new business system settled by the one who take it over. Both conditions are the consolidation of companies and inorganic growth of firm. The term Merger and Acquisitions are well-known as M&A.
An example of successful merger is Exxon – Mobil. Exxon was the oil king in 1999 and became larger after assigned $81 billion for agreement and contract with Mobil. Formerly in the 19th century, Exxon was John D. Rockefeller’s Standard Oil Company of New Jersey and Mobil was Standard Oil Company of New York. So both of them actually were big oil company but only originate from different places. As the result of merging, ExxonMobil remains the strongest leader in the oil market, with a huge hold on the international market and dramatic earnings. In 2008, ExxonMobil occupied all ten spots in the “Top Ten Corporate Quarterly Earnings” (earning more than $11 billion in one quarter) and it remains one of the world’s largest company based on revenue (second only to Walmart Stores). Another example is about a successful acquisition, Google Inc. acquired Youtube for $1.65 billion. Even though Google now have owned Youtube, however, the company will keep operating its own Google Video as a separate operation. YouTube will still retain its brand, and its 67 staff, including co-founders Chad Hurley and Steve Chen, will keep their jobs. "By joining forces with Google, we can benefit from its global reach and technology leadership to deliver a more comprehensive entertainment experience for our users and to create new opportunities for our partners." said Mr. Hurley.
So, based on those successful examples of merger and acquisitions of two companies, we could obtain new understandings that doing merger and acquisition will give benefits to both companies such as :
1. The consolidated company will have much larger amount of capital.
2. The consolidated company will have chances to create more and more customers.
3. The consolidated company may create new ideas, together innovate new better products and better quality of business management system and market strategy because of the combination of talents from two different companies.
4. The consolidated company may have opportunity to increase their market share and expand into new geographies and sectors.
5. The consolidated company may reduce their cost because the budgets for things like marketing might be trimmed, while the new, larger company enjoys greater purchasing power, which lowers the costs of raw materials and other necessities and they can also share office space and eliminate duplicate manufacturing facilities.
Part II
ReplyDeleteHowever, there are also example of failed merger and acquisition. An example of unsuccessful merger is Daimler Benz/Chrysler ($37B). In 1998, Mercedes-Benz manufacturer Daimler Benz merged with U.S. auto maker Chrysler to create Daimler Chrysler for $37 billion. The logic was obvious: create a trans-Atlantic car-making powerhouse that would dominate the markets. But by 2007, Daimler Benz sold Chrysler to the Cerberus Capital Management firm, which specializes in restructuring troubled companies, for a mere $7 billion. And also a failed acquisition is Quaker – Snapple. In 1994, grocery store legend Quaker Oats purchased the new-kid-on-the-block, Snapple, for $1.7 billion for making Snapple drinks just as popular. However, their efforts failed miserably. After just 27 months, Quaker Oats sold Snapple for $300 million.
Based on above examples, doing merger and acquisitions may also cause problems. Why? These factors may explain why problems may appear.
1. Because Company A and B have different cultures and corporation systems to interact with different behaviour in the market.
2. Diseconomies of scale if business become too large, which leads to higher unit costs.
3. Clashes of culture between different types of businesses can occur, reducing the effectiveness of the integration.
4. May need to make some workers redundant, especially at management levels - this may have an effect on motivation.
5. May be a conflict of objectives between different businesses, meaning decisions are more difficult to make and causing disruption in the running of the business.
6. Increase in cost to consumers
7. Decreased corporate performance and/or services
8. Potentially lowered industry innovation
9. Suppression of competing businesses
10. Decline in equity pricing and investment value
11. Legal expenses
12. Short-term opportunity cost
13. Cost of takeover
14. Potential devaluation of equity
15. Intangible costs
So based on above examples, we make take conclusion that taking merger or acquisition is not always benefit to the conflicted companies. Even though after they consolidated they may become larger and stronger, conflicts and problems may happen and may destroy their formation or consolidation and may have large costs. In order to prevent appearing problems in taking merger or acquisition, both companies should have good agreement and future planning for what should be done after they merged or acquired other companies in order to make the merging or acquiring to be useful for them.
Resources of data response :
1. http://news.bbc.co.uk/2/hi/business/6034577.stm
2. http://www.rasmussen.edu/degrees/business/blog/best-and-worst-corporate-mergers/
3. http://www.investopedia.com/terms/m/mergersandacquisitions.asp
4. https://www.openforum.com/articles/5-reasons-entrepreneurs-benefit-from-the-merger-growth-strategy/
5. http://smallbusiness.chron.com/advantages-company-mergers-22476.html
6. http://www.moneycation.com/2011/02/advantages-and-disadvantages-of.html
7. http://wiki.answers.com/Q/What_are_advantages_and_disadvantages_of_mergers
Excellent work Neil, perfect case studies in accordance to the articles.
DeleteAwesome.
Mergers and acquisitions (abbreviated M&A) are both an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture.
ReplyDeleteMergers and acquisitions are usually made by the motifs of expanding the business as it does indeed increases the size of the business. The growth and expenditure of this activity is dependent on the other company, as a large company will not gain a major size increase if it acquired a small company.
The main benefit of Mergers or acquisitions is, the growth increase for the company as i have mentioned before. It does this in multiple ways:
One is that it increases the quality of the factors of production. When one company acquired another company, the will have the rights to use their factors of production. How it increases the quality? Because the other company which is acquired, has specialized factors of production which could help the acquiring company to make their own products better by combining two specialized factors of production into one product. This is usually known as vertical mergers or acquisitions. One example of this is Sony and Gaikai, in July 2012 Sony acquired Gaikai a streaming service company. At the worth of $380 Million US, Sony acquired Gaikai in order to develop a streaming service that Sony is planning to make for their new products. These types of mergers and acquisitions are called Horizontal M&A.
Second is that mergers and acquisitions increases versatility of the company. When a company buys or mergers with another company that has no relations with what they are producing, they are increasing their range of products. Because by selling more different products you will be more versatile in types of products. This will help in cases where a market for one product is going down drastically, the company can be helped by the other side of it which does not sell the product in question. So being a larger company by being more versatile is a very useful trait a company could have. This is known as Vertical M&A. One of the biggest Vertical M&A that happened recently is with Berkshire Hathaway acquiring H. J. Heinz Company by $28 Billion USD, Berkshire is mostly a non-food product selling company, while Heinz is a Ketchup selling company. These two are very different companies when it comes to what they sell. After this happen, Berkshire became a larger company and a more versatile company.
But mergers and acquisitions doesn’t always result in a positive manner
For one it does increases the size, but this means the company would be much harder to control and organize, hence why some companies would like to remain small so the company would be much easier to control and organize.
But it is not something that could not be overcome, which means the total risk is less than the total benefit.
In conclusion, there are disadvantages of companies doing M&A but all of those can be overcome, and M&A are done because the Total Benefit of it is > Total risk that it brings to both companies.
Source of case studies are missing. You have done good work.
Deletehttp://en.wikipedia.org/wiki/Gaikai
Deletehttp://en.wikipedia.org/wiki/Mergers_and_acquisitions
http://en.wikipedia.org/wiki/Berkshire_Hathaway
http://en.wikipedia.org/wiki/H._J._Heinz_Company
Both Mergers and acquisitions has the same goal, to make their companies bigger, more profit, known by many ppl around the world and many others. Merging is when 2 or more business/firms join together . while acquisitions is when a business buy more shares from another business to take over the business, and when they take over the business, the business’ capital will be taken by them as well as the workers, facilities and etch and its easier to grow because the business took another growing or big business too, so they don’t need to start from the bottom or 0 again.
ReplyDeleteThere are 5 types of mergers, theyre conglomerate, horizontal mergers, market extensions mergers, product extension mergers and vertical mergers. ◦Conglomerate means a merger between firms, that are involved in totally different type of business activities. There are 2 types of conglomerate mergers: pure&mix. Pure conglomerate mergers involve firms with nothing in common, while mix conglomerate mergers involve firms that are looking for market or product extensions. The example: the merging of walt Disney company and amrican broadcasting company ◦horizontal merger means a merger occurring in the same industry, they merge to have a larger share. The example: cocacola and pepsi division, merge between beverage ◦market extension merger means a merge between 2 business that has relations to each other the example: the acquisition of Eagle Bancshares Inc by the RBC Centura. ◦product extension merger is A product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market the example: The acquisition of Mobilink Telecom Inc. by Broadcom ◦vertical merger means A merger between two companies producing different goods or services for one specific finished product.
The benefits of merger:
1. It doesn’t require cash, it can be accomplished tax-free for both parites.
2. A merger lets the target (the seller in effect), realize the appreciation potential of the merged entity. Instead of being to limited sales.
3. It allows the smaller enitites to own a smaller piece of a larger pie, increasing their overall net worth.
4. reduces the number of competition in the market and captures additional economic scales of the market. This will keep the company growth with the amalgamation of the competitive advantages of both firms.
5. enables the company to restructuring and strengthening the organization as firms involved in the transaction share strategies to strengthen the organization, thus eliminate weaknesses in the firm. By the way, two heads are better than one.
The disadvantages of merger:
ReplyDelete1. a merger must be approved by votes of the stockholders of each firm.
2. create clashes of culture between different types of business. Thus this reduces the effectiveness of the integration.
3. creating a conflict of objective between different businesses, meaning decisions are more difficult to make and causing disruption in running of the business.
4. results dissatisfaction among current staffs as positions will be limited and the management have to decide which staffs to hold the position after the transaction has taken place
so, it come to conclusion that a merger and acquisitions both has disadvantages and advantages, firms can use those ways so they can grow in size. If you own a small business that someone wants to merge with their larger business, there are many advantages and disadvantages of this to consider. It doesn't require a sale so there is no taxation of a merger. It also allows no exchanging of cash to happen which makes things smoother. But the downside of this is it could make some positions in the company redundant, because the other might already have someone in that spot.
Thankyoi- thania vireta
Source: http://www.mbda.gov/goto?destination=http://www.investopedia.com/
http://www.mbda.gov/goto?destination=http://www.economywatch.com
There are 2 major ways a firm can grow in size. The first way a firm can grow in size would be through organic growth, also know as internal growth. In this method the firms will increase the size of their company by themselves, without joining another company. They can grow internally by increasing the size of their premises, number of employees, also the scale of production. They can also become a joint-stock company, that way they can receive more money and then they can increase the company costs, but at the same time increasing the profit received. An example of a firm that grows organically would be apple. Apple has incredible efficient growth although using the internal growth method since it’s pretty hard to increase the size of your business using internal growth cause you usually need more source of money to pay the company costs.
ReplyDeleteOn the contrary, external growth is the growth in the operations of a business that arises from mergers or takeovers (acquisitions), rather than an increase in the companies own business activity. Firms that choose to grow inorganically can gain access to new markets and fresh ideas that become available through successful mergers and acquisitions. It is also seen as a faster way to increase the size of a firm. In many industries, such as technology, growth is often accelerated through increased innovation, and one way for firms to compete is to align themselves with those companies that are developing the innovative technology.
Now this process involves the integration through merger or acquisition.
There are 3 types of integrations:
1. First there is the horizontal integration, it is when 2 companies merge or takeover engaged in the production of the same type of goods or services. Take Disney as an example, they create movies and television shows, uses the characters to create toys and market other products to kids, etc. It is not vertically integrated since Disney used other companies to o some of the work on the movies and TV programs, to manufacture the toys, etc.
2. Then there is the vertical integration, that is when 2 companies at different stages of production merge. For example Shell oil which does everything from exploration to drilling to running it’s own gas station would be classified as vertical integration.
3. Lastly there is the backward and forward integration. Backward and forward integration are types of vertical integration.. Backward integration is vertical integration in an upstream direction, for example a company merging or buying out a supplier. Forward integration, on the contrary, is vertical integration in a downstream direction, for example a manufacturer controlling retail outlets, or a plantation having a canning factory.
ReplyDeleteMerger is when 2 or more companies join together to become 1 company. An example of a successful merged company is Disney-Pixar. Acquisitions on the other hand is when one company buys enough shares of the other company so that they takeover the company. It could be either be friendly or hostile. Friendly means that the company that will takeover has the other firm’s consent to do so. Hostile however is that if the company being taken over has a different argument with the takeover company.
There are various advantages and disadvantages to mergers and acquisitions. For mergers they can reduce their cost since the capital increased from joining another company, they can also receive more knowledge and skills. However in mergers there could be a culture clash, since it’s not only the brands and products that merge but also the people that bring along a specific corporate culture. Also if 2 companies merge, they both need to see it from the consumers point of view since if an environmental friendly soap company merges with an industrial detergent manufacturer with a poor environmental track record, it may alienate the customers of the environmentally friendly soap company who don't want to support a company that is not environmentally responsible.
To acquisitions, the advantages include the speed of the availability of natural resources, also the decrease of risk of competition. Unfortunately there are also some disadvantages to acquisitions. It may be costly since the acquirer may pay high cost, especially in cases of hostile take over bids. Value may not be added for the acquirer. There might also be financial consequences; the returns from acquisitions may not be attractive. Executed cost saving may not materialize.
In conclusion to my theory, I think that the firms will not always benefit from mergers or acquisitions since there are advantages and disadvantages to them too.
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Charlene 8B
Merger and acquisitions have the same objective , which is to make the firm grow bigger . Merger is when owner of one or more firms agree to join while acquisition is when a firm buy another firm to make their business grow bigger . all of them will have advantages and disadvantages . Well , firms can grow in size with two ways . Internally and external . Merger will considered to have the external way.
ReplyDeleteSo , when a firm doing the merger and acquisitions , they will have a benefit , which is their firm will grow bigger . But , to make the business have this benefit , they must have a good decision and they must choose the same type of business. Merger and acquisition will have three types , which are first , is horizontal . horizontal means a firm bought another firm at the same level .Second is vertical . Vertical means that the firm buy another firm that have different stage production . third is lateral . Lateral means that the firm buy another firm that have different expertise needed . A business will have a very big benefit if they choose the horizontal one . But if they take the lateral one , it wont make any benefit to them , even it will make the business have a loss . The advantages of merger and acquisition are First , of course the business will grow bigger , the example will be like microsoft and nokia . Microsoft bought the nokia ‘s company with a price of $7.2 billion . This thing will of course make Microsoft company grow bigger . microsot will be specialized in software ,but nokia will be very good in making phone , gadget . So Microsoft will take this advantages . they can make a product where this two brand joined together .they could make a new phone which have the Microsoft software inside, and that will be so good . the business will grow bigger and bigger . they might produce a new product which have a very good technology. The second is that the business will have more profit . when a business joined together , they must have bigger benefit . More interesting product and they will also have more idea in making the product. This will make people want to buy more and produce a lot of profit .the example will be Disney and pixar . Disney and pixar are having the merger . And this make a very big profit for them . they choose to have a merger with the same type of business and this is working . Disney had released all of Pixar’s movies before, but with their contract about to run out after the release of “Cars,” the merger made perfect sense. With the merger, the two companies could collaborate freely and easily. Another example will be like Mickey and Nemo. Pinocchio and “Toy Story.” Cinderella and “Cars.” The third is increased in market share . the fourth is Lower cost of operation and/or production .
But not only advantages , business will also have many disadvantages in dong this if they didnt make the right choice , they might have a loss . and this is usually happening to the lateral one . the disadvatages will be :
ReplyDelete1. they need to have a train , and learn again about the business history . This may take a lot of time for the business .
2. Decreased corporate performance and/or services. This is because they still didn’t have the knowledge about the new business . This is usually happening to the lateral one . because they didn’t really know about the business , of course it will hard for them to provide services for the consumer and have a decreased in corporate performances.
3. Potentially lowered industry innovation
4. Suppression of competing businesses
5. Decline in equity pricing and investment value
So , doing mergers and acquisitions might have a very big benefit , but all of them need a good choice . every business must know what type of business they are taking and if they want to take the merger or acquisition they must take the same type of business or the one that with only have a different stage production. Lateral is usually the one that making a business having a disadvantages .
Source : http://www.theverge.com/2013/9/2/4688530/microsoft-buys-nokias-devices-and-services-unit-unites-windows-phone
http://www.rasmussen.edu/degrees/business/blog/best-and-worst-corporate-mergers/
http://www.moneycation.com/2011/02/advantages-and-disadvantages-of.html
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Kezia – 8b
A merger is a legal consolidation of 2 companies into one entity, whereas an acquisition is when a company takes over another company and completely establishes itself as the new owner of that company. An example of a successful merger is when Disney and Pixar work together, without Pixar there won’t be any movies such as Toy Story and Cars which were successful in the box office. An example of a failed merger is mattel and the learning company. Mattel is a very popular company that creates toys and other things for kids and at the year 1999 they decided to buy the almost bankrupt learning company. A year after that Mattel’s profit decreased badly as they lost 206 million dollars .
ReplyDeleteA merger or acquisition can have many benefits just like how exxon and mobil merge together and the company became the biggest company in their time. A benefit of a merger or acquisition is that it enables enhanced performance and cost efficiency. When 2 or more companies get together and are supported by each other , the business will gain tremendous profit in terms of financial gains and work performance. Another advantage is that the company can still maintain its competitive edge because there are many issues and strategies that can be well understood and acquired by combining their resources and talents of 2 or more companies. Another advantage is that it gains cost efficiency , this happens because any kind of merger actually improves the purchasing power as there is more negotiation with bulk orders. Staff reduction also helps a great deal in cutting costs and increasing profit margins of the company. Apart from this increase in volume of production results in reduced cost of production per unit that eventually leads to raised economies of scale.
Even though mergers and acquisitions can bring a lot of benefits it also has a lot of disadvantages as well. A disadvantage is that after the company has bought another company it will lose a lot of money since companies are very expensive. If a company needs to borrow money, it will increase their debt burdens. The company can issue stock but the current stock holders will lose some control and ownership rights. Another disadvantage is that more employees will leave because of the acquisition. Since now the 2 companies are working together, there will be a lot of employees that are doing similar tasks so they will fire excess employees. Because they are concerned of a future layoff, a lot of employees will quit and look for other jobs. Another disadvantage is that the value of the company could decrease. If an oil company that was responsible for a major oil spill buys a solar panel manufacturer, the solar firm will lose its value because of bad reputation.
So in conclusion mergers and acquisitions can have a lot of benefits such as profit increase and cost efficiency. Mergers and acquisitions also have some disadvantages such as loss of money and loss of employees. Firms will not always benefit from mergers and acquisitions.
The Main Idea
ReplyDeleteOne plus one makes three: this equation is the special alchemy of a merger or anacquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A.
This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone.
Distinction between Mergers and Acquisitions
Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things.
When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.
In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created.
In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it's technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal as a merger, deal makers and top managers try to make the takeover more palatable.
A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition.
Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders.
So in conclusion , firms may always benefits the mergers and acqusitions , the companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone.
Source : http://www.investopedia.com/university/mergers/mergers1.asp
Mergers and acquisitions both make the market bigger and greater, well as you know Mergers and acquisitions (abbreviated M&A) are both an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture. They both can make the market have a lot of advantages but there also be the disadvantages of mergers and acquisitions. So here are some of the advantages and disadvantages.
ReplyDeleteWell first we need to know that the growth of firms has 2 types first organic which is growth from the inside and inorganic which is growth from the outside, they both are intigerations. As we know that mergers and acquisitions can make the firms bigger and greater, mergers and acquisitions have 3 types too, first horizontal, it means both are the same level and the same stage of production, the example of horizontal mergers is A merger between Coca-Cola and the Pepsi beverage division, for example, would be horizontal in nature. The goal of a horizontal merger is to create a new, larger organization with more market share. Because the merging companies' business operations may be very similar, there may be opportunities to join certain operations, such as manufacturing, and reduce costs.. Second, vertical, it means difference stage of production example like Honda and oil, the example of vertical merger is A vertical merger joins two companies that may not compete with each other, but exist in the same supply chain. An automobile company joining with a parts supplier would be an example of a vertical merger. Such a deal would allow the automobile division to obtain better pricing on parts and have better control over the manufacturing process. The parts division, in turn, would be guaranteed a steady stream of business. Synergy, the idea that the value and performance of two companies combined will be greater than the sum of the separate individual parts is one of the reasons companies merger. Third, lateral, it means it is difference from the expertise needed. The advantages of mergers and acquisitions are first, Obtaining quality staff or additional skills, knowledge of your industry or sector and other business intelligence. For instance, a business with good management and process systems will be useful to a buyer who wants to improve their own. Ideally, the business you choose should have systems that complement your own and that will adapt to running a larger business. Second, Your business underperforming. For example, if you are struggling with regional or national growth it may well be less expensive to buy an existing business than to expand internally. Third, Reducing competition. Buying up new intellectual property, products or services may be cheaper than developing these yourself. So as we can take a summary this is the advantages of mergers and acquisitions Increased market share, Lower cost of operation and/or production, Higher competitiveness, Industry know how and positioning, Financial leverage, Improved profitability and EPS.
Not always that mergers and acquisitions have advantages there also have some disadvantages such as Disadvantages arise when employees and clients/shareholders are kept "in the dark." They want to know the details--how EXACTLY they will be affected. Having a sense of the changes to come gives them a sense of empowerment and can serve to deepen their trust when things unavoidable become a little confusing or disruptive. There are also the other disadvantages first, the bigger the business the harder to control because we need more money to control and run the business. Second, there will be more decision making and more risk, because big company will have more risk because they have more responsibility to run and control the business. Third, More expensive e.g. more running costs, more demand, more supplies, more products need to be made, new location.
ReplyDeleteSo the conclusion is business can use merger and acquisitions to make the firms bigger and greater well it make the firms to have more advantages because it can make the firms bigger and more productive but not always merger and acquisitions have more advantages, there always have the disadvantages like there will be more risk to control and run the business and they need more responsibility and more supplies to make higher productivity.
References:
http://en.wikipedia.org/wiki/Mergers_and_acquisitions
http://www.mbda.gov/node/1409
http://www.mbda.gov/node/1394
http://www.moneycation.com/2011/02/advantages-and-disadvantages-of.html
http://wiki.answers.com/Q/What_are_advantages_and_disadvantages_of_mergers_and_takeovers
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shelvina gabriela 8b
Part 1
ReplyDeleteMerger and acquisition are both different from each other, but they both have the same objective, which is to make a firm grow bigger and better. According to Google, the definition of merger is a combination of two things especially companies into one. In my knowledge, merger is when the two companies have agreed and decided to join together, following the rules and regulations that both companies have agreed. Usually merging happens in the same industry, for example supermarket chain or bank cooperation.
Before we discuss deeper about merging, we need to know that there are 2 ways in which we can grow a firm.
First is internal growth and external growth.
In internal growth, it requires an increase in sales. In order to do this, the firm will have to promote existing products and launch new products; this will require an increase in productive capacity. It can finance growth via borrowing, retaining profits (internal funds) or issuing new shares.
Second, is External Growth. Where mergers and acquisitions belongs. These are the ways in which businesses can grow externally and grow by joining together to form one company.
There are three types of merger, which are horizontal merging, vertical merging, and lateral merging. In horizontal merging, the two companies that joined together are from the same industry. Horizontal merger is a business consolidation that occurs between firms who operates in the same space, often as competitors, offering the same goods or service. One of the famous examples in real life is the banking company called CIMB, merging with Niaga, resulting the CIMB Niaga bank.
Different from the horizontal merging, vertical merging takes place when firms from different part of the supply chain (industry) consolidate in order to make the production process more efficient or cost effective. An example of this type of merging was the merger between Walt Disney Company and the American Broadcasting Company, since this two are different types of industry.
The third, lateral merging, A lateral merger/takeover is where a business merges with a business who makes similar goods to it but who are not in competition with each other, for example if a chocolate bar manufacturer merged with a luxury chocolate manufacturer.
Now, I will discuss about Acquisition. The definition in the web is a cooperation in which a company buys most, if not all of the target company's ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company's growth strategy whereby it is more beneficial to take over an existing firm's operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company's stock or a combination of both. The acquiring company often offers a premium on the market price of the target company's shares in order to entice shareholders to sell. For example, News Corp.'s bid to acquire Dow Jones was equal to a 65% premium over the stock's market price.
Part 2
ReplyDeleteNow some companies will probably think that mergers and acquisitions will bring benefit and many advantages to their business, but not all of them will bring good things to them, different cases and different types of business will also have different effects when it comes to merging and acquisitions. But for some companies, these advantages may be brought to them if they do merging and acquisitions.
1. Economies of scale. This occurs when a larger firm with increased output can reduce average costs. Lower average costs enable lower prices for consumers.
Different economies of scale include:
Technical economies; if the firm has significant fixed costs then the new larger firm would have lower average costs,
Bulk buying – A bigger firm can get a discount for buying large quantities of raw materials
Financial – better rate of interest for large company
Organizational – one head office rather than two is more efficient
· Note a vertical merger would have less potential economies of scale than a horizontal merger example, a vertical merger could not benefit form technical economies of scale. However in a vertical merger there could still be financial and risk-bearing economies.
Some industries will have more economies of scale than others. For example, car manufacture has high fixed costs and so gives more economies of scale than two clothing retailers.
2. International Competition. Mergers can help firms deal with the threat of multinationals and compete on an international scale. The two company can team up together to create a better and cheaper products and services that may bring interest to customers not just in their nationally, but also internationally.
3. Mergers may allow greater investment in R&D. R&D management can be defined as where the tasks of innovation management (example, creating and commercializing inventions) meet the tasks of technology management (example, external and internal creation and retention of technological know-how) This is because the new firm will have more profit which can be used to finance risky investment. This can lead to a better quality of goods for consumers. This is important for industries such as pharmaceuticals that require a lot of investment.
4. Greater Efficiency. Redundancies can be merited if they can be employed more efficiently.
5. Protect an industry from closing. Mergers may be beneficial in a declining industry where firms are struggling to stay afloat. For example, the UK government allowed a merger between Lloyds TSB and HBOS when the banking industry was in crisis.
6. Diversification. In a conglomerate merger two firms in different industries merge. Here the benefit could be sharing knowledge, which might be applicable to the different industry. For example, AOL and Time-Warner merger hoped to gain benefit from both new Internet industry and old media firm.
Part 3
ReplyDeleteMerger may also bring disadvantages for business, If a merger leads to a significant increase in market share, either in local or national markets, the new firm could exercise monopoly power. The legal definition of a monopoly is a firm with more than 25% of the market. If the firm has monopoly power there could be the following disadvantages:
1. Higher prices leading to allocative inefficiency)
2. Lower Quantity and reduction in consumer surplus
3. Monopolies are more likely to be productively inefficient and not produce on the lowest point on the average cost curve
4. Easier to collude
5. If there is less competition complacency amongst firms can lead to lower quality of products and less investment in new products
6. Fewer firms therefore less choice for consumers
7. With increased supernormal profits the firm can engage in cross subsidisation or predatory pricing increasing Barriers to Entry.
8. The new firm can pay lower prices to suppliers
9. Mergers can lead to job losses.
10. If the firm becomes too big it may suffer from diseconomies of scale
11. The motives for mergers is often poor, example, managers may prefer to work for a big company where they get higher salaries and more prestige.
If a merger goes well, the new company should appreciate in value as investors anticipate synergies to be actualized, creating cost savings and/or increased revenue for the new entity.
However, time and again, executives face major stumbling blocks after the deal is consummated. Cultural clashes and turf wars can prevent post-integration plans from being properly executed. Different systems and processes, dilution of a company's brand, overestimation of synergies and lack of understanding of the target firm's business can all occur, destroying shareholder value and decreasing the company's stock price after the transaction. This article presents a few examples of busted deals in recent history.
In 1968, the New York Central and Pennsylvania railroads merged to form Penn Central, which became the sixth largest corporation in America. But just two years later, the company shocked Wall Street by filing for bankruptcy protection, making it the largest corporate bankruptcy in American history at the time. The railroads, which were bitter industry rivals, both traced their roots back to the early- to mid-nineteenth century. Management pushed for a merger in a somewhat desperate attempt to adjust to disadvantageous trends in the industry. Railroads operating outside of the northeastern U.S. generally enjoyed stable business from long-distance shipments of commodities, but the densely-populated Northeast, with its concentration of heavy industries and various waterway shipping points, created a more diverse and dynamic revenue stream. Local railroads catered to daily commuters, longer-distance passengers, express freight service and bulk freight service. These offerings provided transportation at shorter distances and resulted in less predictable, higher-risk cash flow for the Northeast-based railroads.
Part 4
ReplyDeleteAnother example of a failed merge and acquisition company is the Sprint and Nextel Communications. In August 2005, Sprint acquired a majority stake in Nextel Communications in a $35 billion stock purchase. The two combined to become the third largest telecommunications provider, behind AT&T (NYSE:T) and Verizon (NYSE:VZ). Prior to the merger, Sprint catered to the traditional consumer market, providing long-distance and local phone connections and wireless offerings. Nextel had a strong following from businesses, infrastructure employees and the transportation and logistics markets, primarily due to the press-and-talk features of its phones. By gaining access to each other's customer bases, both companies hoped to grow by cross-selling their product and service offerings. Soon after the merger, multitudes of Nextel executives and mid-level managers left the company, citing cultural differences and incompatibility. Sprint was bureaucratic; Nextel was more entrepreneurial. Nextel was attuned to customer concerns; Sprint had a horrendous reputation in customer service, experiencing the highest churn rate in the industry. In such a commoditized business, the company did not deliver on this critical success factor and lost market share. Further, a macroeconomic downturn led customers to expect more from their dollars. Sprint saw stiff competitive pressures from AT&T (which acquired Cingular), Verizon and Apple's (Nasdaq:AAPL) wildly popular iPhone. With the decline of cash from operations and with high capital-expenditure requirements, the company undertook cost-cutting measures and lay off employees. In 2008, the company wrote off an astonishing $30 billion in one-time charges due to impairment to goodwill, and its stock was given a junk status rating. With a $35 billion price tag, the merger clearly did not pay off.
So from all my explanations and examples above, in my opinions and thoughts, I believe that different types and business will need different ways and strategies to succeed in mergers an acquisitions. A firm may fail and succeed in different factors and ways, depending on what business they do, and techniques they use to fulfill their success.
Celine Kusnadi 8B
References:
ReplyDeletehttp://www.wikipedia.org/
http://www.revisionguru.co.uk/economics/growth.
htmhttp://www.economicshelp.org/
http://www.investopedia.com/
http://www.google.co.uk/
Merger and acquisition merger is a when two companies combine into one companies while acquisition when one companies take over other companies usually companies merge or acquisition to have synergy, diversification/sharpening business focus,growth,increase supply chain pricing power and to eliminate competition so its all about making their business having better quality , easier , cheaper and many more but does this always bring a advantage to the business that merge or acquisition first i will tell the advantages that merging and acquisition helps to the business
ReplyDeleteBuisness that success because of merger and acquisitions is disney and pixar because pixar have already have two years planning of movies and disney have the expert in the merchandising and making movies which make this merge very good and profitable
First it can can increase the market share of the company because two firms combine so there market share of course will rise if they became one
Second is that it can lower the cost of production and operation so if a steel making company merge or have a acquisition with a car making company this can benefit the company because cheaper materials and many more
Third is that it can make the new company have Higher competitiveness so this mean the company will be more competitive in the economy so they are harder to be defeated by other company
Fourth is financial leverage so if two company merge they will of course have better access in financial and capital
Fifth is that industry expertise so the other business can help this business with the expertise such as disney and pixar pixar do the planning and movie script while disney make it happen and do the merchandising
But beside all this advantage there are also disadvantage of merger and acquisition because sometimes instead of making the industry improves it also cost a lot and have other disadvantage that a people who wants to merged or acquisition must think about first or before the merge or buying such as
Business that fails and goes bankrupt after the merge or acquisition is New york central and Pennsylvania railroad this merge make them becoming the 6 largest company in America but than it get bankrupt after two years because this two business was once really bad rivals ,lack of planning bad ,management and culture crash
The first disadvantage is the cost of the takeover because its very expensive it really need the business usually business owe money from banks but the business will need to repay it again with a higher percentage
Second disadvantage is hard to plan because making a new business needs so many plans at first in order for it to success and planning for a combined two huge companies that have different aims is hard
Third disadvantage is culture the business will be very hard to control because the two companies ego or different ways of controls
So in my conclusion is that merger and acquisition don't always gives the business a advantages such as more market share lower cost of production and operation,higher competitiveness in the market,financial leverage and industry expertise but it also have many disadvantage such as cost of takeover, hard to make plans and culture crash so the people who want to merge or acquisition must have planning in order for their business to success.
Sources and references are from
http://www.moneycation.com/2011/02/advantages-and-disadvantages-of.html
http://www.rasmussen.edu/degrees/business/blog/best-and-worst-corporate-mergers/
Part 1
ReplyDeleteMergers and acquisitions (abbreviated M&A) are both an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture. There are many good reasons for growing your business through an acquisition or merger. These include:
1. Obtaining quality staff or additional skills, knowledge of your industry or sector and other business intelligence. For instance, a business with good management and process systems will be useful to a buyer who wants to improve their own. Ideally, the business you choose should have systems that complement your own and that will adapt to running a larger business.
2. Accessing funds or valuable assets for new development. Better production or distribution facilities are often less expensive to buy than to build. Look for target businesses that are only marginally profitable and have large unused capacity which can be bought at a small premium to net asset value.
3. Your business underperforming. For example, if you are struggling with regional or national growth it may well be less expensive to buy an existing business than to expand internally.
4. Accessing a wider customer base and increasing your market share. Your target business may have distribution channels and systems you can use for your own offers.
5. Diversification of the products, services and long-term prospects of your business. A target business may be able to offer you products or services which you can sell through your own distribution channels.
6. Reducing costs and overheads through shared marketing budgets, increased purchasing power and lower costs.
7. Reducing competition. Buying up new intellectual property, products or services may be cheaper than developing these yourself.
8. Organic growth, ie the existing business plan for growth, needs to be accelerated. Businesses in the same sector or location can combine resources to reduce costs, eliminate duplicated facilities or departments and increase revenue.
There’s also some disadvantage of merger, there are:
Diseconomies of scale if business becomes too large, which leads to higher unit costs.
Clashes of culture between different types of businesses can occur, reducing the effectiveness of the integration.
May need to make some workers redundant, especially at management levels - this may have an effect on motivation.
May be a conflict of objectives between different businesses, meaning decisions are more difficult to make and causing disruption in the running of the business.There’s an example of merger of a company in Indonesia is the merger of the telecommunication company between PT XL Axiata and PT Axis Telekom Indonesia. In a statement filed to the Indonesia Stock Exchange (IDX) on Monday, XL Axiata, the country’s second-largest telecommunication company by subscriber numbers, said Axis will be merged into XL when it acquires a 95 percent stake.
The company will seek shareholders’ approval on Jan. 22 while aiming to get the go-ahead from the Financial Service Authority by Feb. 28. Last month, the company secured approval from the Ministry of Information and Communication for the merger.
“The merger plan of XL and Axis is in line with our shared objective to be a more integrated telecommunication company,” the statement said.
The merger is also expected to increase efficiencies in the use of capital expenditure and operational expenditure at XL.
Part 2
ReplyDeleteThe company will gain Axis’s assets such as telecommunication towers and base transceiver stations that can be used to for network expansion.
XL signed the sales and purchase agreement for Axis back in September when it agreed to purchase the controlling stake from Teleglobal Investment for $865 million. The amount also includes Axis’s liabilities.
Teleglobal is controlled by Saudi Telecom Company (STC), who decided to sell after the company — along with STC’s other subsidiary in Malaysia—“continued to drag the financial results of the group.”
Meanwhile, Harmersha Investindo, a local company who owns 5 percent of Axis, has agreed to sell its stake to XL for an undisclosed amount, Monday’s statement said.
XL will gain 13.3 million cellular subscribers from the acquisition, which will be added to its current 58.1 million subscribers. It will cement its position as the second largest telecommunication operator in Indonesia.
Its closest rival, Indosat, has 53.8 million cellular subscribers while the market leader, Telkomsel — owned by state-controlled Telekomunikasi Indonesia — has 127.9 million subscribers.
XL has seen its profitability decline this year. Its net income fell by 58 percent year-on-year in the first nine months to Rp 917 billion ($75 million) on the back of higher costs, even as its subscriber base increased. In the corresponding period last year, XL booked Rp 2.2 trillion net income.
Indonesia’s Ministry of Information and Communication is encouraging more consolidation in the industry to achieve healthier competition among operators.
According to a report by Frost and Sullivan, Telkomsel, XL, and Indosat control 70 percent of the cellular telecommunication market in Indonesia, while seven other operators fight for a share in the remaining 30 percent of the market.
Shares of XL fell 2.9 percent on Tuesday to Rp 5,050, while the broader market gained 0.3 percent.,
In this merger, the advantage of them such as Accessing funds or valuable assets for new development, Accessing a wider customer base and increasing your market share and Reducing costs but Xl will got all that the disadvantage of the merger
So, as the conclusion, merger and acquisitions is not always advantage but sometimes it will cause disadvantage for the company
Reference :
1. http://en.wikipedia.org/
2. http://www.mbda.gov/
3. http://www.thejakartaglobe.com/
Richard Sanders – 8B
Nowadays, mergers and aquisitions are in trend and actually have captured the interest of businessmen around the world. Some companies merge together not only because of capital matter but also in order to decrease the number of competitors as well as to capture bigger market. In some countries where there is a domestic or local company that has a very unique concept, they might actually earn the attention of international businessmen or even company. If they do not have enough capital, there international company might actually fund them and take the specific company to be the sub company of that giant international company. Some companies that actually very weak in their capital or financial are even taken off by bigger companies that have better financial capability. Of course, these financially weaker company has to have certain interesting points or technology that would actually trigger the interest of the big and more stabil companies.
ReplyDeleteInternational company acquisitions for example is between sony and ericson. The Ericson company did not do well in mobile phone business and finally was taken over by sony. They merge and form a name of sony ericson. Ericson in one hand had the benefits of strenghtening their human resource as well as capital from the fund that Sony given out. On the other hand Sony earned new better mobile phone technology and were actually gaining the additional market for them. Sony has a very advance technology in colour as well as display monitor and sound, while Ericson has the advantage of having a very good technology in communication services including mobile phone technology. When Sony took over ericson, they actually produced a very good products. They had varieties of mobile phones that were able to suit people's need. From the ones that have a very high technology that can support the executives' needs to the ones that has physical strengths that can suit the need of the people that work on field like contractors, miners and etc.
Mergers are also common in commercial banks. In indonesia itself, we could see eversince the year of 1998, the time when Indonesia suffered from huge economic crisis, many banks were actually merging together to form a stronger firm in capital as well as to widen their prospects as well as markets. Some of these banks were actually made up of more than two banks. And some evern up to five banks. These mergers happened actually also due to their capital and financial unstability. These acts were done to rescue their position as well as their clients trust.
Although some mergers or acquisitions might not be as good as others but mostly they could survive by doing it. However, there are some cases that happened as well after a big company took over an unstabil company, the situation turned the other way round. Instead of lifting the smaller company name, in fact it is spoiling the bigger company name.
Hence, whether to do merger or acquisition, companies should really do survey, researches as well as studies to ensure that the path they are taking is the right ones for the both companies.
Sources and references are from:
Google
Note book
Wikipedia
Vincent CIA
8B
Merger and acquisition are both strategies used to buy, sell, divide and the combining of companies with similar entities to help the company grow larger inside it’s sector or other (New, Similar, Minor fields) without the joining venture. Merger is one of the strategies used in order to increase in growth, by combining two companies into one entity or the same identity. Acquisition is the take over one company by another and established its ownership on it.
ReplyDeleteThere are 3 types of Merge and Acquisition; vertical and horizontal and lateral. Vertical happened when a company integrates with another company that needs each other to function or work (Cars and Petrol, Software and Hardware). Horizontal is when the company integrates with a companies that also works in the same sector or in line which each other (Disney and Pixar (Cartoon), Quaker and Snapple (Consumption)). Lateral is when unrelated sector of companies integrates with each other.
Merging with another company maybe a, good and bad thing. Merging as it was said from the statement above the combination of two companies (Example. Exxon and Mobil, Mattel and The Learning Company). Many had succeed due merging with, Disney and Pixar soared in the cartoon world, Disney released a lot of Pixar’s movies by contract but it was about run out of time, so they merger, with that they made more successful movies (Wall-E, Up, Bolt). But some also did fail, For example, Mattel and The Learning Company, Mattel has remained a childhood staple for decades, and in 1999, it attempted to go into the educational software market by taking up an almost-bankrupt, The Learning Company (creators of learning games like Carmen Sandiego & Myst). Less than a year later, The Learning Company lost $206 million, which has taken down Mattel’s profit with it. By 2000, Mattel was losing $1.5 million a day and its stock prices kept dropping. The Learning Company was sold, by the end of 2000, but Mattel was forced to lay off some of its employees in order to cut costs. And it may totally fail, Sprint/Nextel, In 2005, Sprint and Nextel Communications. These two companies believed that merging of personal cell phones and home service from Sprint, and the business market from Nextel would create a great collaboration (for only $35 billion). But this did not stay long, as soon as the merger started, Nextel executives and managers left the new company in droves, claiming that the two cultures could not get along. And also due to the economy started to take a turn for the worse, and customers expected more and more from their providers with competition from AT&T, Verizon, and the iPhone drove down sales, and Sprint/Nextel began lay-offs. Its stocks plummeted, and for all those involved, the merger clearly failed.
So, in order to conclude on what has been stated above, firms are both at advantage and disadvantage when it mergers or uses acquisition with another company, it’s just how a company polishes the chances it was given when they merge or acquisitioned with another company, it could help raising the growth of a company, expanding it’s territory, but it can also be the downfall, it can bring down a company’s profit, sales, etc.
Grace – 8B
Basically merger and acquisitions are actions that are heading to the same purpose, increasing a firm/a company’s size, using two or more companies in the process. The difference is how it’s going to increase the size of the firm. Merger is basically 2 or more firms working together to compete with more power in the market, with each firm is still in control of their own respective owners. Whereas if acquisitions means that a firm is buying the other firm, which also means they work together, but the control is only in a firm, not both owners. Now I’m going to explain do merger and acquisitions are always beneficial for the firms.
ReplyDeleteIF we do merger and acquisitions, there will a type of integration, which means connections between 2 firms. If firms did merger, it is usually with the same type and industry as its firm. We could call this as horizontal integration. Benefits of this integration is that both firms will share ideas to create better type of product compared to before. Like for example Nokia and Microsoft, they work in the same type of industry, they work to create better type of phones to beat IOS and Android. Whereas if the firm doing acquisitions to another firm. It’s usually done to dominate the market or decreasing costs of production. Buying firms to decrease costs of production is called vertical integration. For example, Tata Steel and Corus. Tata Steel bought Corus, and by buying Corus, Tata save $350 Million every year. Another integration type is lateral, which is buying another firm which is not related with the firm. For example, heater and an air conditioner making company. Benefits of this is if a firm’s sales is going down, the other one still could generate enough money if the firm’s market is exploding.
But, there is still some disadvantages of doing such integrations, for horizontal integrations, since both firms are in the same industry, when their market is down, the will lose a lot of profit they should be having normally. For vertical integration, the disadvantages is that if the firm who supplies product’s output is less, the firm will have no choice but to import from other firms, which means increase in expenses of the firm, which will decrease profit of the firm in the future. For lateral integration, if when we acquisitioned a small market firm, that firm will not generate enough revenue for the other firm.
So now we know that it’s not always beneficial to do merger and acquisitions.
Theodore 8B