MERGER

# Merger : The combination of two or more firms, in

which the resulting firm maintains the identity of one of
the firms, usually the larger one .
Identity Larger one
Acquiring control - Mgt.
Maximize share value
Diversification
Tax consideration
# Consolidation: The combination of two or more firms to
form a completely new corporation.
New corporation absorbs the assets & liabilities.

# Holding Company (HC): A HC is a corporation that

has voting control of one or more other corporation.
# Subsidiaries : The companies control by a holding
companies .
* Control -- Sufficient no. of shares
# Merger
(I) Acquiring Company : The firm in a merger
transaction that attempts to acquire another firm.
(ii) Target Company : The firm in a merger transaction

# Friendly Merger : A merger transaction :

Endorsed by the target firms mgt.

# Strategic Merger : A merger transaction undertaken

to achieve economics of scale.
Eliminating redundant
Increasing market share

# Motives for Merging :

1. Growth or Diversification
- Market share- Size
-Product Diversification
-Internal Growth time consuming
-Risk of new product
-Design Sale Competitor

3. Fund Raising
*May unable to obtained fund
*External business combination
*High liquidity cash rich lower cost

# Types of Merger
1. Horizontal Merger : A merger of two firms in the same
line of business.
Expansion Competition
2.Vertical Merger : A merger in which one firm acquires
a supplier or customer to control over raw materials
3. Congeneric Merger : A merger in which one firm

## LEVERAGED BUYOUT (LBO)

An acquisition technique involving the use of a larger
amount of debt to purchase a firm.
Financial Merger
Debt 90 % or more
Borrowing secured by acquired firms assets

## DIVESTITURES
The selling of some of a firms assets for various
strategic motives.
Operating Unit : A part of a business, such as a plant,
division, product line or subsidiary, that contributes to

# SPIN OFF:Operating unit becomes an independent

company
Issuing share
Pro rata basis
# Brake up value: The value of a firm measured as sum
of the value of its operating units if each is sold

# Acquisition of Assets:
Fixed assets collection according to needs
Acquiring company needs
Tax losses
Purchase Financially Justification ?
Cost & benefits of target company / assets

# Merger Negotiation Process

1. Handled by Investment Banker
Acquirers hire to find target companies
Mgt. Wish to sell -- hire investment banker
Investment banker negotiate direct tender offer

# Fighting Hostile Takeover

Mgt. Of target firm does not favor hostile takeover . To
prevent hostile takeover they may take different defense.
Such as :
# White Knight : A takeover defense in which the target

# Green Mail : Target firm repurchases through a

private negotiation.
# Leveraged Recapitalization : A takeover defense in
which the target firm pays a large debt - financed cash

# Shark Repellents : Anti takeover amendments to a

corporate charter that constrain the firm's ability to
transfer managerial control of the firm as a result of a
merger.