MEANING OF MERGER

Basically, when two companies become one. This decision is usually mutual between both
firms.

TYPES OF MERGER
There are five commonly-referred to types of business combinations known as mergers:
horizontal merger, conglomerate merger, congenric merger, vertical merger and reverse
merger. The term chosen to describe the merger depends on the economic function, purpose
of the business transaction and relationship between the merging companies.

1. HORIZONTAL MERGER
A merger occurring between companies in the same industry. Horizontal merger is a business
consolidation that occurs between firms who operate in the same space, often as competitors
offering the same good or service. Horizontal mergers are common in industries with fewer
firms, as competition tends to be higher and the synergies and potential gains in market share
are much greater for merging firms in such an industry.

HORIZONTAL MERGER BETWEEN BANK OF AMERICA AND

MBNA.

Bank of America Corp. said that it will acquire MBNA Corp. in a $35 billion cash and
stock deal that will result in 6,000 jobs cuts but transform the nations third-largest bank
into one of the worlds largest credit card issuers.

MBNA President and CEO Bruce L. Hammonds, 57, will become CEO and president of
Bank of America Card Services and report to Liam E. McGee, 50, president of Bank of
America global consumer and small business banking. Hammonds will remain in
Wilmington, Del., where MBNA is headquartered, and be part of Bank of Americas risk
and capital committee.

Frank P. Bramble, Sr., a vice chairman of MBNA, will be appointed to the Bank of
Americas board of directors.

Bank of America said the acquisition is an opportunity to grow a business that has proven
to be one of its fastest growing segments.

For years, I have been impressed with the sales capabilities of MBNA, Ken Lewis,
Bank of Americas chairman and chief executive, told a group of industry analysts after
the deal was announced. I see them as a selling machine.

We think the strategies complement each other. We have the franchises and they have
marketing savvy.

After the deal is completed, Bank of America will have 40 million active credit card
accounts, making it one of the leading worldwide payments-services companies and
issuers of credit, debit and prepaid cards based on total purchase volume, Lewis said.

2. CONGLOMERATE MERGER
A merger between firms that are involved in totally unrelated business activities. There are
two types of conglomerate mergers: pure and mixed. Pure conglomerate mergers involve
firms with nothing in common, while mixed conglomerate mergers involve firms that are
looking for product extensions or market extensions.

CONGLOMERATE MERGER BETWEEN WALT DISNEY

COMPANY AND AMERICAN BROADCASTING COMPANY.

THE MERGER: WALT DISNEY TO ACQUIRE ABC IN $19

BILLION DEAL TO BUILD A GIANT FOR ENTERTAINMENT

In the second-largest corporate takeover ever, the Walt Disney Company

moved to create the world's most powerful media and Entertainment
Company, announcing that it would acquire Capital Cities / ABC Inc. for $19
billion.

The combined company would bring together the most profitable television
network and its ESPN cable service with Disney's Hollywood film and
television studios, the Disney Channel, its theme parks and its repository of
well-known cartoon characters and the merchandise sales they generate.

"These are the two premier family entertainment companies," Michael D.

Eisner, the chairman and chief executive of Disney, told a news conference in
New York.

Without making direct reference to the merger, President Clinton expressed

concerns yesterday about the growing concentration of media ownership and

said he might veto legislation to deregulate the nation's communications

industries.

There has not been a change of ownership at one of the big three networks
since 1986, when the General Electric Company bought RCA, which owned
NBC. Earlier that year, Capital Cities acquired ABC to form the company that
Disney is buying.

Wall Street obviously thought the deal was favourable for both companies.
Capital Cities/ABC's shares surged $20.125, to $116.25, while Disney's shares
gained $1.25, to $58.625.

Under the deal, Disney said it would pay one share of its stock and $65 in cash
for each share of Capital Cities/ABC, though it might allow shareholders to
choose more stock or more cash.

Disney said it planned to borrow $10 billion to complete the deal. Even with
the prospect of that added debt, many investors focused on the potential
growth the combined company would have.

Still some analysts were skeptical. John Tinker, who follows the media
industry for Furman Selz & Company, said Capital Cities/ABC was not
growing as fast as Disney and might slow down the combined company.

3. CONGENRIC MERGER
Merger between firms in the same general industry but having no mutual buyer-seller
relationship, such as a merger between a bank and a leasing company.

CONGENRIC MERGER BETWEEN CITICORP AND

TRAVELLERS INSURANCE

The companies described the deal as a merger, valuing it at $140 billion, but
the mechanism is essentially a stock swap, with Travellers paying $70 billion
for Citi's shares. That would make it nearly twice as big as the current recordholder, WorldCom's pending $42 billion offer for MCI Communications.
Travellers will issue 2.5 shares for each Citicorp share, and current
stockholders of each company will own about half of the new enterprise.
With $698 billion of assets, the merged enterprise would be the largest
financial-services company in the world, slightly larger than Bank of Tokyo-

Mitsubishi. The new company, to be called Citigroup, would also be by far the
most valuable in the business, with a market capitalization of about $135
billion
Its logo will retain the bank's familiar lettering followed by an umbrella, the
symbol used by Travellers.
Much of Wall Street liked the deal, and Citicorp's stock shot up $35.625 to
close at $178.50, while Travellers raised $11.3125 to close at $73. The
announcement, which was made before the market opened, helped the Dow
Jones industrial average move convincingly through the 9,000 level. (Page 11)
The deal would give Travellers the ability to market mutual funds and
insurance to Citicorp's retail customers while giving the bank access to an
expanded client base of investors and insurance buyers. In this way, it is
similar to the deal early last year that joined Morgan Stanley Group Inc., a
securities underwriter and asset manager, with Dean Witter Discover & Co., a
retail stockbroker and credit-card purveyor.
In 1989, Mr Weill bought retail brokerage operations that had belonged to
Drexel Burnham Lambert Inc., which was forced to close because of its
problems in the junk-bond market. In 1992, he began to buy Travellers, which
had been plagued by bad real-estate investments, and in 1993, he bought
Shearson from American Express for $1.2 billion. Last year, he bought
Salomon Brothers, the bond-trading powerhouse that had run into trouble with
the government by trying to corner the market at Treasury-bond auctions.
According to Mr Reed, it was Mr Weill who had the idea of uniting Citicorp
with Travellers, broaching the idea late in February. Mr Reed said he found the
idea instantly appealing because it allowed the two organizations to merge
their distribution channels, providing "one-stop shopping" for consumers.
Mr Reed said an emerging worldwide middle class would not "want to shop
from place to place" for financial products. "Nobody wants a mortgage," he
said, "They want to buy a house." Similarly, he said, savers do not want to
own mutual funds but want to prepare for retirement as part of an overall plan.

4. VERTICAL MERGER
A merger between two companies producing different goods or services for one specific
finished product. A vertical merger occurs when two or more firms, operating at different
levels within an industry's supply chain, merge operations. Most often the logic behind the
merger is to increase synergies created by merging firms that would be more efficient
operating as one.

VERTICAL MERGER BETWEEN TIME WARNER AND AOL

This case analyses the merger between Time Warner and AOL. The merger had been
established in 2001.The case presents how lack of synergy if not handled properly - can
produce catastrophic effects on corporate success. The case defines how Corporate Culture
and Organizational Structure are assets as important as Physical and Financial resources.
A brand company, committed to continuously innovating, growing, and investing in brands
and experiences that inform, entertain, and connect the world.
Steve Case placed AOL as the online service for people unfamiliar with computers. Steve
Case focused on Marketing as a competitive advantage compared to his competitors. AOL
was a pioneer in creating GUI chat services, Interactive online gaming, and the Chat room
concept. AOL adapted its services to multiple HW and SW platforms: Apple II, Apple
Macintosh, IBM PC, Commodore 64, DOS, Windows, and Mac OS.
The company implemented its strategies from within, by relying on its own knowledge and
resources, and from Outside, by relying on Mergers, Acquisitions, and Mutual Agreements.
The companys strategy paid off well: Stock value had grown 50,000 percent since the IPO.
The company bought its main competitor CompuServe in 1998.The Company at its peak had
30 million subscribers. The company became the premier ISP in USA.
Time Warner focused on Quality and Variety of Content as a competitive advantage
compared to its competitors. On the Corporate Level, the company followed a Diversification
Strategy, both in related and non-related businesses. On the Business Unit Level, the
company follows Broad Best Value strategies, to appeal to as much consumers as possible
and to victor over competitors.
Time Warner had been operating in a Mature Technology market.

MERGER
Steve Case and Gerald Levin announced the merger. AOL would pay $183bn in Stock for
Time Warner. AOL would assume $17bn of Time Warners debt. AOL would own 55% of
Time Warner. Stock combination value was $350bn.
AOL was the 1st Internet Service Provider in the US. Time Warner was the 2nd Cable
Company in the US. Combined revenue was over $30bn. Create the worlds first global,
fully integrated media and Communications Company for the internet century. Delivering
Branded Information, Entertainment, and Communications across converging media
platforms and changing technologies.
AOL now has a new Broadband Distribution Platform. Added Value for AOL,
attracting more users: Very Rich online content, discounts on movies, magazines, and cable
subscriptions for subscribers. Warner Bros. retail stores will allow AOL to market its services
widely.AOL disks will be included in Time Warners product shipments. AOL will accelerate
Time Warners Digital Transformation .Popular AOL products will be available for Time
Warners Road Runner users. The merger will allow both companies to go global.
Knowledge and Learning: The Company is on the edge of all new innovations and
technologies. Financial Resources: Stock Combination valued at $350 bn.
Combined Revenues of more than $30 bn in the US.

Combined Revenues of more than 250 mn in Europe.

5. REVERSE MERGER
In a reverse merger, investors of the private company acquire a majority of the shares of the
public shell company, which is then merged with the purchasing entity. Investment banks and
financial institutions typically use shell companies as vehicles to complete these deals.
Reverse merger allows private company to become public without raising capital, which
considerably simplifies the process.

Some High Profile and Successful RTO

Armand Hammer, world renowned oil magnate and industrialist, is generally

credited with having invented the RTO. In the mid-1950s, Hammer invested in
a shell company into which he merged multi decade winner Occidental
Petroleum.
In 1970 Ted Turner completed a reverse merger with failing Rice
Broadcasting, which went on to become Turner Broadcasting.
In 1996, Muriel Siebert, renown as the first woman member of the New York
Stock Exchange, took her brokerage firm public by reverse merging with J.
Michaels, a defunct Brooklyn Furniture company.
One of the Dot Com fallen Angels, Rare Medium (NASDAQ: RRRR), merged
with a marginal refrigeration company. This was a $2 stock in 1998 which
found its way over $90 in 2000.
Aklaim Entertainment (NASDAQ: AKLM) merged into non-operating TeleCommunications Inc. in 1994.

Advantages of Going Public through a Reverse Merger

Benefits of Going Public Through the RTO (Reverse Take Over)

Initial costs are much lower and excessive investment banking fees are avoided.
The time frame for becoming public is considerably shorter.
There is no significant regulatory review or regulatory approval for the transaction.
The company can now use its stock as currency to finance acquisitions and attract
quality management.
Capital is easier to raise as investors now have a clearly defined exit strategy through
the public markets.