MERGERS & ACQUISITION PROJECT

TYPES OF MERGERS AND

ACQUISITONS

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 A MERGER REFERS TO AN AGREEMENT IN WHICH
TWO COMPANIES JOIN TOGETHER TO FORM ONE
COMPANY. IN OTHER WORDS, A MERGER IS THE
COMBINATION OF TWO COMPANIES INTO A SINGLE
LEGAL ENTITY. IN THIS PRESENTATION, WE WILL
LOOK AT DIFFERENT TYPES OF MERGERS AND
ACQUISITIONS THAT COMPANIES CAN UNDERGO.
TYPES OF MERGERS
Horizontal merger: A merger between companies that are in direct
competition with each other in terms of product lines and markets

Vertical merger: A merger between companies that are along the same supply
chain (e.g., a retail company in the auto parts industry merges with a
company that supplies raw materials for auto parts.)

Market-extension merger: A merger between companies in different markets that sell

similar products or services
Product-extension merger: A merger between companies in the same markets that sell different
but related products or services

Product-extension merger: A merger between companies in the same markets that sell different
but related products or services
 HORIZONTAL MERGER
A horizontal merger is a merger between companies that directly
compete with each other. Horizontal mergers are done to increase
market power (market share), further utilize economies of scale, and
exploit merger synergies.
A famous example of a horizontal merger was that between HP (Hewlett-
Packard) and Compaq in 2011. The successful merger between these two
companies created a global technology leader valued at over US$87
billion
 VERTICAL MERGER

A vertical merger is a merger between companies that operate

along the same supply chain. A vertical merger is the combination
of companies along the production and distribution process of a
business. The rationale behind a vertical merger includes higher
quality control, better flow of information along the supply chain,
and merger synergies.
A notable vertical merger happened between America Online and
Time Warner in 2000. The merger was considered a vertical merger
due to each company’s different operations in the supply chain –
Time Warner supplied information through CNN and Time Magazine
while AOL distributed information through the internet.
 PRODUCT EXTENSION MERGER
A product-extension merger is a merger between companies that sell related products or
services and that operate in the same market. By employing a product-extension merger,
the merged company is able to group their products together and gain access to more
consumers. It is important to note that the products and services of both companies are not
the same, but they are related. The key is that they utilize similar distribution channels and
common, or related, production processions or supply chains.

For example, the merger between Mobilink Telecom Inc. and Broadcom is a product-
extension merger. The two companies both operate in the electronics industry and the
resulting merger allowed the companies to combine technologies. The merger enabled the
combination of Mobilink’s 2G and 2.5G technologies with Broadcom’s 802.11, Bluetooth,
and DSP products. Therefore, the two companies are able to sell products that complement
each other.
 MARKET EXTENSION MERGER
A market-extension merger is a merger between companies that sell the
same products or services but that operate in different markets. The
goal of a market-extension merger is to gain access to a larger market
and thus a bigger client/customer base.
For example, RBC Cantura’s merger with Eagle Bancshares Inc. in 2002
was a market-extension merger that helped RBC with its growing
operations in the North American market. Eagle Bancshares owned
Tucker Federal Bank, one of the biggest banks in Atlanta, with over 250
workers and $1.1 billion in assets.
 CONOLOMERATE MERGER
A conglomerate merger is a merger between companies that are totally unrelated. There are two
types of a conglomerate merger: pure and mixed.
A pure conglomerate merger involves companies that are totally unrelated and that operate
in distinct markets.
A mixed conglomerate merger involves companies that are looking to expand product lines
or target markets.
The biggest risk in a conglomerate merger is the immediate shift in business operations resulting
from the merger, as the two companies operate in completely different markets and offer
unrelated products/services.

For example, the merger between Walt Disney Company and the American Broadcasting
Company (ABC) was a conglomerate merger. Walt Disney Company is an entertainment
company, while American Broadcasting company is a US commercial broadcast television
network (media and news company).
 IN SIMPLE TERMS, AN ACQUISITION OCCURS WHEN ONE
COMPANY BUYS ANOTHER COMPANY. THE ACQUIRING
COMPANY GAINS CONTROL OVER THE PURCHASED
COMPANY'S ASSETS, OPERATIONS, AND MANAGEMENT.
ACQUISITIONS CAN HAPPEN FOR VARIOUS REASONS, SUCH
AS EXPANDING MARKET SHARE, ACCESSING NEW
TECHNOLOGY OR PRODUCTS, OR DIVERSIFYING BUSINESS
OPERATIONS.
 TYPES OF ACQUISITION

Asset Acquisition: Purchasing specific assets, such as patents or

technology, rather than the entire company, to enhance capabilities or
expand market reach.
Horizontal Acquisition: The acquisition of a company operating in the same
industry and at the same stage of production, aiming to consolidate market
share and achieve economies of scale.
Vertical Acquisition: The acquisition of a company operating at a different stage of the
supply chain, aiming to gain control over inputs, distribution channels, or customer bases
to streamline operations and increase efficiency.
Conglomerate Acquisition: The acquisition of a company operating in a completely different
industry, aiming to diversify the acquiring company's portfolio and spread risk across multiple
sectors.
Hostile Takeover: The acquisition of a target company against the wishes of its management or
board of directors, often through direct tender offers to shareholders or other aggressive tactics.
 ASSET ACQUISITION

In an asset acquisition, the acquiring company purchases specific assets or divisions of the target
company rather than acquiring the entire company. This allows the buyer to select and acquire
only the assets they desire while avoiding assuming the target company's liabilities. Its an
interesting choice if someone is interested in intellectual property, technology, or business units
of the target company.

Microsoft's Acquisition of Nokia's Devices and Services Division (2014): Microsoft acquired
Nokia's Devices and Services division for approximately $7.2 billion. This acquisition included
Nokia's smartphone and mobile phone business, along with certain patents and manufacturing
facilities. Microsoft aimed to strengthen its position in the mobile market but later wrote down
most of the value of the acquisition
 HORIZONTAL ACQUISITION

A horizontal acquisition occurs when the acquiring company buys a

competitor or another company operating in the same industry and
market. The goal is often to increase market share, expand the
customer base, or eliminate competition in order to achieve
economies of scale, synergies, and cost reductions.

Facebook's Acquisition of Instagram (2012)

Disney's Acquisition of 21st Century Fox (2019)
 VERTICAL ACQUISITION

In a vertical acquisition, the acquiring company purchases a supplier or

customer company operating at a different stage of the same industry's
supply chain. Vertical acquisitions aim to integrate different parts of the
production or distribution process, streamline operations, and capture
efficiencies. By vertically integrating, companies can gain more control
over their supply chain, reduce costs, and improve coordination
between different stages of production.
 EXAMPLE
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Amazon's Acquisition of Whole Foods (2017): Amazon acquired Whole Foods, a grocery store
chain, to vertically integrate into the retail grocery market and strengthen its distribution
network for perishable goods.

Apple's Acquisition of AuthenTec (2012): Apple acquired AuthenTec, a biometric security

company, to vertically integrate fingerprint sensor technology into its devices, such as the
iPhone, enhancing security features and user experience.
 CONGLOMERATE ACQUISITION

A conglomerate acquisition involves the acquisition of a company operating in a different

industry or unrelated business lines. The acquiring company seeks to diversify its business
portfolio, expand into new markets, or acquire new technologies or capabilities. Conglomerate
acquisitions can reduce risk by spreading business interests across different industries and
provide opportunities for growth and innovation.

Sony's Acquisition of Columbia Pictures (1989): Sony acquired Columbia Pictures, a major film
studio, to diversify its operations beyond electronics and enter the entertainment industry,
combining hardware and content creation capabilities.
 HOSTILE TAKEOVER
A hostile takeover, also known as an unfriendly acquisition,
occurs when the acquiring company attempts to acquire the
target company without the target company's consent or
cooperation.
The acquiring company may directly approach the target
company's shareholders to purchase their shares or launch a
tender offer to acquire a majority stake.
Hostile takeovers can be contentious and may involve legal
battles, shareholder activism, or other aggressive tactics to gain
control of the target company.
 EXAMPLE
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Kraft's Acquisition of Cadbury (2010): Kraft Foods, an American multinational food and
beverage company, launched a hostile takeover bid for Cadbury, a British confectionery
company. Despite resistance from Cadbury's management and stakeholders, Kraft's bid was
successful, leading to the acquisition of Cadbury by Kraft.

Microsoft's Attempted Acquisition of Yahoo (2008): Microsoft, a technology giant, made a

hostile bid to acquire Yahoo, an internet company known for its search engine and web services.
Yahoo's management rejected Microsoft's offer, leading to a prolonged and ultimately
unsuccessful acquisition attempt.