UNIVERSITY COLLEGE OF

TECHNOLOGY SARAWAK
INDIVIDUAL ASSIGNMENT

SUBJECT CODE : MBC3543

SUBJECT TITLE : CORPORATE FINANCE

NAME : LIONG FOOK LUON

MATRIC NO. : BAC 14090020

PROGRAM : BACHELOR OF ACCOUNTANCY

ACADEMIC FACILITATOR : Mrs. Nancy Ling Lin

Mergers and Acquisitions (M&A)

Mergers and acquisition (M&A) is the process of combining two companies into
one or are transactions in which the ownership of companies, other business organization,
or their operating units are transferred or consolidated with other entities. M&A include
different transaction such as mergers, acquisitions, consolidations, tender offers, purchase
of assets and management acquisitions. This all cases are involved two companies.
M&A can be allowing enterprises to grow and downsize, and change the nature of their
business or competitive position on the aspect of strategic management. M&A can take
place by purchasing assets, purchasing common share, exchange of shares for assets, and
exchanging shares for shares.

When the two companies join forces, the merger will happen. Such transactions
typically occur between two businesses of the same size and identify the advantages of
other businesses in terms of increased sales, efficiency and capabilities. The terms of the
merger are usually quite friendly and the parties agree that the two companies will
become equal partners in the new company. When a company buys another company
and fold it into its operations, it will make acquisitions. Sometimes the purchase is
friendly; sometimes it is hostile, depending on whether the acquired company thinks it is
better as a business unit of a large enterprise. The end result of the two processes is the
same, but the relationship between the two companies differs depending on whether the
merger or acquisition occurred. The M&A process has many steps and can often take
anywhere from 6 months to several years to complete. There is 10-step M&A deal
process includes:

1. Develop an acquisition strategy

2. Set the M&A search criteria
3. Search for potential acquisition targets
4. Begin acquisition planning
5. Perform valuation analysis
6. Negotiations
7. M&A due diligence
8. Purchase and sale contracts
9. Financing strategy for the acquisition
10. Closing and integration of the acquisition
M&A Transaction of Exxon/Mobil

In recent decades, the late 1990s was the culmination of M&A. In the 21 st
century, activity began to slow down, but gradually increased: 2015 was a record year,
signing a global transaction of about $4.7 trillion. An example of good mergers an
acquisition transaction is the ExxonMobil Corporation (XOM). XOM is the largest
company in the oil and gas sector. It was created in 1998 by bringing together the
fragments of Standard oil monopoly (Exxon Corporation and Mobil Corporation in an
$80 billion deal.

XOM was combining by two companies, Exxon and Mobil. At the time of the
deal, Exxon and Mobil were the largest and second-largest oil producers in the U.S. with
a combined market capitalization of $238 billion. Exxon and Mobil, the leading of
American petroleum groups signed an agreement according to which Exxon will hold
70% and Mobil 30% of the new ExxonMobil entity. This agreement is dependent on the
approval of the competition regulation authorities in the United stated and in Europe and
this merger approved by the Federal Trade Commission and the European Commission
by the end of 1999. With this transaction, the market capitalization of the new group was
amounting to $238 billion. The aim of this grouping is to rationalization of the assets and
accompanied by a cost reduction allowing for making profits and to better stand up to the
cyclical ups and downs. Because performed at that time is in a low crude oil price
context. These two companies had signed on 2 August 1998, a merger agreement that
has rapidly obtained all the required approvals and was effective from the end of 1998.
This merger agreement gave birth to an entity having a market value about $146 billion.
Motives M&A and Impact upon Completion of M&A

The motive of M&A is improved economies of scale. For example, by being able
to purchase raw materials in greater quantities, the costs can be reduced. Second is
increased market share. Assuming the two companies are in the same industry, example
the company of Exxon and Mobil, they are oil producers, bringing their resources
together may result in larger market share. A next motive is increased distribution
capabilities. With expanding geographically, companies may be able to add to their
distribution network or expand its geographic service area. Reduced labor costs and
improved labor talent also is motives of M&A. By eliminating staffing redundancies can
help reduce cost of company and expanding the labor pool from which the new, larger
company can draw can aid in growth and development. The last is enhanced financial
resources. The financial wherewithal of two companies is generally greater than one
alone, making new investments possible.

M&A has impact on the acquiring company or dominant entity in the merger, not
the target company in the acquisition or the company included in the merger when the
activity obviously as a long term ramification. For the target company, an M&A
transaction was gives its shareholders the opportunity to cash out a significant premium.
If the acquirer partially pays in cash and partially pays for its own shares, the target
company's shareholders will acquire the acquirer's shares, thereby generating a vested
interest in its long-term success. For the acquirer, the impact of an M&A transaction is
depends on the deal size relative to the company’s size. The larger the potential target,
the bigger the risk to the acquirer. When the M&A transaction is over, the capital
structure of the acquirer will change, depending on how the M&A transaction is
designed. The full cash transaction will greatly deplete the cash holdings of the acquirer.
Since many companies seldom have the cash hoard available to make full payment for a
target firm outright, so all-cash transactions are usually financed by debt. Many M&A
transactions are also financed through the acquirer’s stock. For the acquirer to use its
stock as the acquisition currency its stock usually must start at a high price, otherwise the
purchase will be an unnecessary dilution.
Summary

Merger and acquisitions (M&A) is the common name for transactions as are result
of which acquired control of another company, or by combining approximately equal
business when formed a new company or when a larger company integrates in its
structure of the business at the company. Having considered the various options for the
typology of M&A transactions, it concluded that the most frequently encountered in the
literature division of transactions by the nature of the integration of the companies,
namely vertical, horizontal, conglomerate and childbirth.

Reference

1. Corporate Finance in Europe

https://www.corporatefinanceineurope.eu/blog/successful-mergers-acquisitions-
examples.htm

2. Mergers Acquisition M&A Process

https://corporatefinanceinstitute.com/resources/knowledge/deals/mergers-
acquisitions-ma-process/

3. Mergers and Acquisitions

https://www.edupristine.com/blog/mergers-acquisitions

4. How mergers and acquisition can affect a company

https://www.investopedia.com/articles/investing/102914/how-mergers-and-
acquisitions-can-affect-company.asp