Assignment on
Merger as a strategy
Submitted to: Submitted By:
Dr S.N. Nandi Manisha Sharma
20090131
Sec A
Merger as a strategy
Introduction
The phrase mergers and acquisitions (abbreviated M&A) refers to the
aspect of corporate strategy, corporate finance and management dealing with
the buying, selling and combining of different companies that can aid,
finance, or help a growing company in a given industry grow rapidly without
having to create another business entity
Distinction between mergers and acquisitions
Although often used synonymously, the terms merger and acquisition mean
slightly different things. When one company takes over another and clearly
establishes 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 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". The firms are often of about the same size. Both companies' stocks
are surrendered and new company stock is issued in its place. For example,
in the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both
firms ceased to exist when they merged, and a new company,
GlaxoSmithKline, 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 is technically an acquisition. Being bought out often carries
negative connotations, therefore, by describing the deal euphemistically as a
merger, deal makers and top managers try to make the takeover more
palatable. An example of this would be the takeover of Chrysler by Daimler-
Benz in 1999 which was widely referred to as a merger at the time.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
Reasons for Merger
There are various strategies for merger:
Competition:
Now a day, new new companies are entering into market so competition
is increasing automatically, to kill that competition merger as a strategy can
be adopted.
Improve finance position of company
Merger can also be done as strategy ,if a company’s financial position is
not good. For example after Sat yam financial fraud
Manhindra&Mahindra merge with satyam to support financially and run
the company today it is known as Manhindra Satyam..
Control backward integration
Merger controls backward integration as it helps in quality control of
product which leads to success of product.
Technology
It is another strategy, to adopt best technology merger can be done which
leads to success of company.
Increase market share
Merger also increase the market share as they kill competition and adopt
new technology.
To go global
Every company don’t know the
1) Culture
2) Language
3) People and their tastes and preferences of other countries so they can
use merger as a strategy. For example: MTN merged with Bharti
Airtel .It was the first merger which not named with foreign entity,
however this deal was cancelled later on.
Expansion
Expanding the business is not one night decision .it takes lots of time and
money for investment for that company can do merger in order to invest
less and what learn about a particular sector un which company don’t
know more. For example: if Vodafone wants to go in retail sector then
they can merge with Big Bazaar or any other company which is in retail
sectors already.
Example of merger
The value of the deal includes 1.7 billion dollars of debt that the Indian
telecom giant will assume.
Bharti is due to pay 8.3 billion dollars on signature of the deal, while the
remaining 700 million dollars will be paid a year later.
Bharti Airtel, the largest Indian mobile phone operator, said on Sunday it
had raised the 8.3 billion dollars, mainly from international banks
The deal would give Bharti 42 million subscribers in 15 African
countries, which have a combined estimated annual revenue of $3.6
billion, but are currently making losses. "The main challenge for Bharti
lies in raising revenues and adding subscribers as Zain has been losing
both in some of the countries Bharti Airtel will have a pan-African
footprint, thanks to the Zain’s operations in 15 countries, and will remain
be-hind only to a select telecom companies that includes China Mobile
and Vodafone. It will also gallop ahead of other giants such as China
Unicom, Sweden’s TeliaSonera, and Germany’s Tmobile.
It’s a big move for Bharti, and it will raise the competitive profile in
Africa.
