MERGERS AND ACQUISITIONS

MBA II SEM
FMCF
 MERGER
A merger is a transaction that results in the
transfer of ownership and control of a
corporation. When one company purchases
another company of an approximately similar
size. The two companies come together to
become one. Two companies usually agree to
merge when they feel that they can do
something together that they can't do on their
own.
When two companies join to form
one new firm if it is voluntary, also
known as a ‘merger’
Types of Merger-
Horizontal merger :- A merger occurring
between companies producing similar
goods or offering similar services. This type
of merger occurs frequently as a result of
larger companies attempting to create more
efficient economies of scale. Example:- The
amalgamation of Daimler-Benz and
Chrysler Company A Company B Company
A B.
Vertical Mergers Definition:- A merger
between two companies producing different
goods or services for one specific finished
product. The merger of firms that have
actual or potential buyer-seller
relationships.

Example:- An example of a vertical merger is

a car manufacturer purchasing a tyre
company. Product of company A Product of
Company B Product of company A B
Conglomerate
Merger :-

A merger between firms that are involved
in totally unrelated business activities.

 There are two types of conglomerate

mergers:-

 Pure:- Pure conglomerate mergers involve

firms with nothing in common .

 Mixed:- mixed conglomerate mergers involve

firms that are looking for product extensions
or market extensions.
Example:-
A simple example would be, American
Broadcasting company (ABC) which has
highest broadcasting channels joining
Waltdisney that creates cartoon characters
to promote cartoon channels in America.
Ways of Merger A merger can
take place in following four ways:
 By purchase of assets.

 By purchase of common share

.
The asset of company Y may be sold to
company X .

once this is done company Y is then legally

terminated and company X survives .
 Cont.

 The common share of company Y

may be purchased by company X.

 when company X holds all the

shares of company Y it is dissolved .

 Exchange of shares for shares.

Company X may give its share to

stake holders of company Y for
its net assets.
Firms are sometimes keen to merge when:

•They can make savings from being bigger.

•This is known as gaining ‘economies of scale’.

•They can compete with larger firms or eliminate

competition.

•They can spread production over a larger range of

products or services
 Economies of Scale
•Technical economies , when producing the

good by using expensive machinery

intensively.

•Managerial economies,

by employing specialist managers.

• Financial economies, by borrowing

•Commercial economies ,

by buying materials in bulk.

•Marketing economies ,

spreading the cost of advertising and

promotion.

•Research and Development

economies ,
from developing better products.
There are sometimes problems

that can affect integrated

firms.

These are known

as ‘diseconomies of scale’
 Cont..

•Firms are too big

to operate effectively.

•Decisions take too long to

make.

•Poor communication occurs.

THANK YOU!