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The phrase mergers and acquisitions or M&A refers to the aspect of corporate finance strategy and management dealing with the merging and acquiring of different companies as well as assets. Usually mergers occur in a friendly setting where executives from the respective companies participate in a due diligence process to ensure a successful combination of all parts. Historically, though, mergers have often failed to add significantly to shareholder value. Corporate Finance is a specific area of finance dealing with the financial decisions corporations make and the tools as well as analyses used to make these decisions. ...
Management (from Old French ménagement the art of conducting, directing, from Latin manu agere to lead by the hand) characterises the process of leading and directing all or part of an organization, often a business, through the deployment and manipulation of resources (human, financial, material, intellectual or intangible). ...
In business or economics a merger is a combination of two companies into one larger company. ...
A corporation is a legal entity (distinct from a natural person) that often has similar rights in law to those of a Civil law systems may refer to corporations as moral persons; they may also go by the name AS (anonymous society) or something similar, depending on language (see below). ...
In business and accounting an asset is anything owned, whether in possession or by right to take possession, by a person or a group acting together, e. ...
Due diligence is the effort a party makes to avoid harm to another party. ...
On other occasions, acquisitions can happen through hostile takeover by purchasing the majority of outstanding shares of a company in the open stock market. In the United States, business laws vary from state to state whereby some companies have limited protection against hostile takeover. One form of protection against hostile takeover is the so-called "poison pill". See Delaware corporations. A takeover in commerce refers to one company (the acquirer) purchasing another (the target). ...
A stock market is a market for the trading of publicly held company stock and associated financial instruments (including stock options, convertibles and stock index futures). ...
A U.S. state is any one of the 50 states (four of which officially favor the term commonwealth) which, together with the District of Columbia, form the United States of America. ...
Poison pill is a term referring to any strategy, generally in business or politics, which attempts to avoid a negative outcome by increasing the costs of that outcome to those who seek it. ...
A Delaware corporation is a corporation chartered in the state of Delaware in the United States. ...
Financing M&A Technically, what differentiates a merger from an acquisition is how it is financed. Various methods of financing an M&A deal exist:
Merger A "merger" or "merger of equals" is often financed by an all stock deal' (a stock swap). The owner of one of the company's stock receive stock in the combined company.
Acquisition An acquisition (of un-equals, one large buyong one small) can involve a cash and debt combination, or just cash, a cash deal. See for example the Sears-Kmart acquisitions.
High-yield In some cases, a company may acquire another company by issuing high-yield debt (high interest yield, "junk" rated bonds) to raise funds. The reason the debt carry a high yield is the risk involved. The owner can not or do not want to risk his own money in the deal, but third party companies are willing to finance the deal for a high cost of capital (a high interest yield). High yield debt (non-investment grade or junk bond) is a business term referring to a corporate debt instrument, usually a bond, that has a higher yield (compared to investment grade debt) because of a high perceived credit risk (default risk). ...
The combined company will be the borrower of the high-yield debt and it will be on its balance sheet. This may result in the combined company having a low shareholders' equity to loan capital ratio (equity ratio). In formal bookkeeping and accounting, a balance sheet is a statement of the financial value (or worth) of a business or other organisation (or person) at a particular date, usually at the end of its fiscal year, as distinct from a profit and loss statement (P&L, also known as...
Examples In a 1985 merger between Pantry Pride and Revlon, Pantry Pride had to issue 2.1 billion dollars of high-yield debt to buy Revlon. The target Revlon was worth 5 times the acquirer. Revlon (NYSE: REV) is an American cosmetics company. ...
Motives behind M&A These motives are considered to add shareholder value: - Economies of scale: This refers to the fact that the combined company can often reduce duplicate departments or operations, lowering the costs of the company relative to theoretically the same revenue stream, thus increasing profit.
- Increased revenue: This motive assumes that the company will be absorbing a major competitor and increasing its power to set prices.
- Cross Selling: For example, a bank buying a stock broker could then sell its banking products to the stock broker's customers, while the broker can sign up the bank's customers for brokerage accounts.
- Synergy: Better use of complementary resources.
- Taxes: A profitable company can buy a loss maker to use the target's tax write-offs.
- Geographical or other diversification: This is designed to smooth the earnings results of a company, which over the long term smooths the stock price of a company, giving conservative investors more confidence in investing in the company
These motives are considered to not add shareholder value: - Diversification: Tend to be unprofitable due to conflict of interest.
- Overextension: Ttend to make the organization fuzzy and unmanageable.
- Manager's hubris: Oftentimes the executives of a company will just buy others because doing so is newsworthy and increases the profile of the company.
- Empire Building: Managers have a larger companies to manage and hence more power
- Manager's Compensation: In the past, certain executive management teams had their payout based on the total amount of profit of the company, instead of the profit per share, which would give the team a perverse incentive to buy companies to increase the total profit while decreasing the profit per share (which hurts the owners of the company, the shareholders); although some empirical studies show that compensation is rather linked to profitablity and not mere profits of the company
- Bootstrapping: Example: how ITT executed its merger.
A perverse incentive is a term for an incentive that has the opposite effect to that intended. ...
This article needs cleanup. ...
M&A and Investment Banking Historically, Investment Banks (intermediaries which assist companies in selling ownership of themselves as stock or borrowing money directly from investors in the form of bonds) have been closely associated with merger and acquisition activity since a merger or acquisition is a sales opportunity for the Investment Bank. If the company wants to merge with another, it must attain a fair market value for its shares to be swapped which would involve an investment bank. If it wants to buy the other company with borrowed money, it would most likely borrow directly from investors in the form of bonds through a private placement, engineered by the investment bank. Thus, Investment Banks position themselves to act as advisors on mergers and aqusitions and usually charge large fees for doing so. Investment banks assist corporations in raising funds in the public markets (both equity and debt), as well as provide strategic advisory services for mergers, acquisitions and other types of transactions. ...
This system however, gives an incentive to Investment Banks to try and stimulate as much M&A activity as possible, even though the result might not be good for the shareholders of the acquiring company. The amount of influence this has is unclear since this activity is usually secret and since the majority of merger proposals do not go through.
M&A marketplace difficulties No effective marketplace currently exists for the mergers and acquisitions of privately-owned small to mid-sized companies. Market participants often wish to maintain a level of secrecy about their efforts to buy or sell such companies. Their concern for secrecy usually arises from the possible negative reactions a company's employees, bankers, suppliers, customers and others might have if the effort or interest to seek a transaction were to become known. This need for secrecy has thus far thwarted the emergence of a public forum or marketplace to serve as a clearinghouse for this large volume of business. A market is a mechanism which allows people to trade, normally governed by the theory of supply and demand, so allocating resources through the price mechanism. ...
At present, the process by which a company is bought or sold can prove difficult, slow and expensive. A transaction typically requires six to nine months and involves many steps. Locating parties with whom to conduct a transaction forms one step in the overall process and perhaps the most difficult one. Qualified and interested buyers of multimillion dollar corporations are hard to find. Even more difficulties attend bringing a number of potential buyers forward simultaneously during negotiations. Potential acquirers in industry simply cannot effectively "monitor" the economy at large for acquisition opportunities even though some may fit well within their company's operations or plans.
An industry of professional "middlemen" (known variously as intermediaries, business brokers, and investment bankers) exists to facilitate M&A transactions. These professionals do not provide their services cheaply and generally resort to previously-established personal contacts, direct-calling campaigns, and placing advertisements in various media. In servicing their clients they attempt to create a one-time market for a one-time transaction. Many but not all transactions use intermediaries on one or both sides. Despite best intentions, intermediaries can operate inefficiently because of the slow and limiting nature of having to rely heavily on telephone communications. Many phone calls fail to contact with the intended party. Busy executives tend to be impatient when dealing with sales calls concerning opportunities in which they have no interest. These marketing problems typify any private negotiated markets. Investment banks assist public and private corporations in raising funds in the Capital Markets (both equity and debt), as well as in providing strategic advisory services for mergers, acquisitions and other types of financial transactions. ...
A telephone handset A touch-tone telephone dial Telephone Complex relay used in a telephone switching system. ...
The market inefficiencies can prove detrimental for this important sector of the economy. Beyond the intermediaries' high fees, the current process for mergers and acquisitions has the effect of causing private companies to sell at a significant discount relative to what the same company might sell for were it publicly owned and traded on a functioning exchange. An important and large sector of the entire economy is held back by the difficulty in conducting corporate M&A (and also in raising equity or debt capital). Furthermore, it is likely that since privately-held companies are so difficult to sell they are not sold as often as they might or should be. A sector is a part of a whole. ...
In finance, discounting is the process of finding the current value of an amount of cash at some future date, and along with compounding cash form the basis of time value of money calculations. ...
A stock exchange is an organization of which the members are stock brokers. ...
For other uses, see Equity (disambiguation). ...
Debt is that which is owed. ...
Previous attempts to streamline the M&A process through computers have failed to succeed on a large scale because they have provided mere "bulletin boards" - static information that advertises one firm's opportunities. Users must still seek other sources for opportunities just as if the bulletin board were not electronic. A "multiple listings service" concept has not been applicable to M&A due to the need for confidentiality. Consequently, there is a need for a method and apparatus for efficiently executing M&A transactions without compromising the confidentiality of parties involved and without the unauthorized release of information. One part of the M&A process which can be improved significantly using networked computers is the improved access to "data rooms" during the due diligence process. Well-used bulletin board on the Infinite Corridor at MIT, November 2004. ...
Data rooms are used in many different types of transaction where the vendor (in the case of a property, M&A or share sale) or the authority (in the case of a PFI/PPP project) wishes to disclose a large amount of confidential data to proposed bidders typically during the...
Due diligence is the effort a party makes to avoid harm to another party. ...
Levels and flows Worldwide Completed Mergers & Acquisitions reported by Thomson Financial ([1]) ($ trillion) Arm of the The Thomson Corporation. ...
- 2004: 1.516 (Q4 2004 report)
- 2003: 1.149 (Q4 2003 report)
- 2002: 1.337 (Q4 2003 report) 1.316 (Q4 2002 report)
- 2001: 2.186 (Q4 2002 report)
Worldwide Announced Mergers & Acquisitions - 2004: 1.949 (Q4 2004 report)
- 2003: 1.333 (Q4 2003 report)
- 2002: 1.207 (Q4 2003 report) 1.230 (Q4 2002 report)
- 2001: 1.701 (Q4 2002 report)
Merger In business or economics a merger is a combination of two companies into one larger company. Such actions are commonly voluntary and involve stock swap or cash payment to the target. Stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal. A merger can resemble a takeover but result in a new company name (often combining the names of the original companies) and in new branding; in some cases, terming the combination a "merger" rather than an acquisition is done purely for political or marketing reasons. Business refers to at least three closely related commercial topics. ...
Economics (deriving from the Greek words οίκω [okos], house, and νÎμω [nemo], rules hence household management) is the social science that studies the allocation of scarce resources to satisfy unlimited wants. ...
A corporation is a legal entity (distinct from a natural person) that often has similar rights in law to those of a Civil law systems may refer to corporations as moral persons; they may also go by the name AS (anonymous society) or something similar, depending on language (see below). ...
A stock swap is a business takeover in which the acquiring company uses its own stock to pay for the acquired company. ...
A takeover in commerce refers to one company (the acquirer) purchasing another (the target). ...
This article is about the concept in marketing. ...
Classifications of mergers - Horizontal mergers take place where the two merging companies produce similar product in the same industry.
- Vertical mergers occur when two firms, each working at different stages in the production of the same good, combine.
- Conglomerate mergers take place when the two firms operate in different industries.
A unique type of merger called a reverse merger is used as a way of going public without the expense and time required by an IPO. In microeconomics and strategic management, horizontal integration is a theory of ownership and control. ...
In microeconomics and strategic management, the term vertical integration describes a style of ownership and control. ...
Conglomerate is: A large diversified company with a wide array of businesses; see holding company. ...
A reverse merger is a method by which a private company can become a publicly traded company without the expense and time requirements involved in an initial public offering (IPO). ...
Wikipedia does not yet have an article with this exact name. ...
Issues The occurrence of a merger often raises concerns in anti-trust circles. Devices such as the Herfindahl index can analyze the impact of a merger on a market and what, if any, action could prevent it. Regulatory bodies such as the European Commission and the United States Department of Justice may investigate anti-trust cases for monopolies dangers, and have the power to block mergers. Antitrust is also the name for a movie, see Antitrust (movie) Antitrust or competition laws legislate against trade practices that undermine competitiveness or are considered to be unfair. ...
In economics, the Herfindahl index is a measure of the size of firms in relationship to the industry and an indicator of the amount of competition among them. ...
The European Commission (formally the Commission of the European Communities) is the executive of the European Union. ...
The United States Department of Justice (DOJ) is a Cabinet department in the United States government designed to enforce the law and defend the interests of the United States according to the law and to ensure fair and impartial administration of justice for all Americans. ...
In economics, a monopoly (from the Greek monos, one + polein, to sell) is defined as a persistent market situation where there is only one provider of a kind of product or service. ...
The completion of a merger does not ensure the success of the resulting organization; indeed, many (in some industries, the majority) mergers result in a net loss of value due to problems. Correcting problems caused by incompatibility—whether of technology, equipment, or corporate culture— diverts resources away from new investment, and these problems may be exacerbated by inadequate research or by concealment of losses or liabilities at one of the partners. Overlapping subsidiaries or redundant staff may be allowed to continue, creating inefficiency, and conversely the new management may cut too many operations or personnel, losing expertise and disrupting employee culture. These problems are similar to those encountered in takeovers. For the merger to not be considered a failure, it must increase shareholder value faster than if the companies were separate, or prevent the deterioration of shareholder value more than if the companies were separate. Organizational Culture refers to the values, beliefs and customs of an organization. ...
A takeover in commerce refers to one company (the acquirer) purchasing another (the target). ...
Major Mergers & Acquisitions since 1990
- AOL Time Warner; America Online and Time Warner (US$166 billion excluding debt, Stock: 100%, Cash: 0%) (PBS coverage, CNN)
- ExxonMobil; Exxon and Mobil Oil (Dec. 1998) ($77 billion, Stock: 100%, Cash: 0%) (Suns Online, CNN)
- Citigroup; Citicorp and Travelers Group ($73 billion, Stock: 100%, Cash: 0%) (Cornell, Citigroup FAQ)
- J.P. Morgan Chase, Bank One (announced January 14, 2004) ($59 billion, Stock: 100%, Cash: 0%) (SNL)
- Procter & Gamble buy Gilette ($54 billion) ([2])
- Bank of America; with FleetBoston Financial ($47 billion) ([3])
- MCI Communications; with WorldCom; created MCI WorldCom (1997) ($44 billion, Stock: 100%, Cash: 0%) (Department of Justice, MCI.com)
- ChevronTexaco; Chevron and Texaco ($35 billion) ([4])
- DaimlerChrysler; Daimler Benz and Chrysler (Announced May 1998 - Final 1998) ($35 billion) ([5])
- Vivendi Universal; Vivendi and Seagram (agreed 19 June 2000) ($32 billion, Stock: 100%, Cash: 0%) (The Tocqueville Connection, Law firm)
- Hewlett-Packard; with Compaq (Announced Sept. 2001 - Final May 2002) ($25 billion) ([6])
- Walt Disney Company; with Capital Cities/ABC (1995) ($19 billion)
- Kmart; with Sears, Roebuck (Announced Nov. 17, 2004) ($11 billion, 55% stock, 45% cash) (Investorguide)
- Monsanto; with Pharmacia & Upjohn
- NBC Universal; NBC and Universal
- Pfizer; with Warner-Lambert
- Total; with Petrofina, and Elf Aquitaine
- JDS Uniphase; with SDL
- Union Pacific Railroad; with Southern Pacific Railroad
- Verizon; Bell Atlantic, GTE, and AirTouch Cellular
- G4; with TechTV, purchased for $300 Million by Comcast.
Time Warner Inc. ...
America Online, or AOL for short, is a corporate online service provider and Internet service provider. ...
Time Warner Inc. ...
The United States dollar is the official currency of the United States. ...
The word billion, and its equivalents in other languages, refer to one of two different numbers. ...
Exxon-branded gas station in California (actually operated by Valero) Greenpeace protest against Exxon Mobil Exxon Mobil Corporation or ExxonMobil (NYSE: XOM), headquartered in Irving, Texas, is an oil producer and distributor formed on November 30, 1999, by the merger of Exxon and Mobil. ...
Exxon Mobil Corporation or ExxonMobil (NYSE: XOM), headquartered in Irving, Texas, is an oil producer and distributor formed on November 30, 1999, by the merger of Exxon and Mobil. ...
Exxon Mobil Corporation or ExxonMobil (NYSE: XOM), headquartered in Irving, Texas, is an oil producer and distributor formed on November 30, 1999, by the merger of Exxon and Mobil. ...
Citigroup Inc. ...
Citibank was founded in 1812 as City Bank of New York. ...
Citigroup Inc. ...
J.P. Morgan Chase & Co. ...
Bank One, based in Chicago, Illinois, was the sixth-largest bank in the United States. ...
Procter & Gamble Co. ...
Gillette may refer to: Gillette, Wyoming The Gillette Company, founded by King C. Gillette. ...
Bank of America (BofA) (NYSE: BAC), based in Charlotte, North Carolina, is the third largest bank in the United States of America, measured in assets. ...
FleetBoston Financial was a Boston, Massachusetts-based bank created in 1999 by the merger of Fleet Financial Group and BankBoston. ...
For the corporation that has used the MCI brand name since 1998, and operated under the MCI name since 2003, see WorldCom. ...
For a time, WorldCom (WCOM) was the United States second largest long distance phone company (AT&T was the largest). ...
For a time, WorldCom (WCOM) was the United States second largest long distance phone company (AT&T was the largest). ...
ChevronTexaco Corporation ( NYSE: CVX) is one of the worlds largest global energy companies. ...
This page is about the pattern or symbol called a chevron. ...
Texaco was the name of an American oil company that was merged into ChevronTexaco in 2001. ...
DaimlerChrysler AG (Xetra: DCX), (NYSE: DCX), has its headquarter in Stuttgart, Germany and is a prominent automobile and truck manufacturer, formed in 1998 by the buyout of the Chrysler Corporation (USA) by Daimler-Benz (Germany). ...
Daimler-Benz AG was founded on May 1, 1924 by the merger of Benz & Cie. ...
The Chrysler Corporation is a United States-based automobile manufacturer, since 1998 merged with Daimler_Benz into DaimlerChrysler. ...
Vivendi Universal (VU) is a French company active in media and communications with activities in music, television and film, publishing, telecommunications and the Internet. ...
Vivendi was the name of a French company, which merged in 2000 with Canal+ television networks and the Canadian company Seagram, the owner of Universal Studios film company, to become Vivendi Universal. ...
The Seagram Company Ltd. ...
The Hewlett-Packard Company (NYSE: HPQ), commonly known as HP, is a very large, global company headquartered in Palo Alto, California, United States. ...
Compaq Computer Corporation was a company producing a wide range of computer products that was formed in 1982 and existed as a standalone entity until 2002 when it was merged with Hewlett-Packard. ...
Alternate meanings: Disney (disambiguation) The Walt Disney Company (also known as Disney Enterprises, Inc. ...
2002 identity of the ABC Circle logo, designed by Paul Rand in 1962. ...
The current Kmart logo Kmart is a brand and retailing division of Sears Holdings Corporation. ...
Sears, Roebuck and Company (NYSE: S) was founded in Chicago, Illinois as a catalog merchandiser in 1886 by Richard Sears and Alvah Roebuck. ...
Monsanto Company (NYSE: MON) is a multinational agricultural biotechnology corporation. ...
Pharmacia was originally a government owned Swedish pharmaceutical company. ...
NBC Universal is a media and entertainment conglomerate formed in May 2004 by the combination of General Electrics NBC with Vivendi Universal Entertainment, part of Vivendi Universal. ...
The National Broadcasting Company or NBC is an American radio and television broadcasting company based in New York Citys Rockefeller Center. ...
Universal has several meanings: For the concept of a universal in metaphysics, see Universal (metaphysics). ...
Pfizer, Incorporated (NYSE: PFE), is a global pharmaceutical company, with headquarters in New York City. ...
A total is a sum. ...
Petrofina was a Belgian oil company merged with Total to form Total Fina. ...
Elf Aquitaine is a former French oil company merged with TotalFina to form TotalFinaElf. ...
Categories: Companies traded on NASDAQ | Companies based in California | Corporation stubs ...
SDL may refer to: Simple DirectMedia Layer Specification and Design Language Stanford Digital Library This page concerning a three letter acronym is a disambiguation page — a navigational aid which lists other pages that might otherwise share the same title. ...
The Union Pacific Railroad (NYSE: UNP) is the largest railroad in the United States. ...
The Southern Pacific Railroad (AAR reporting mark SP) was an American railroad. ...
This article or section should include material from Bell Atlantic This article or section should include material from GTE Verizon Communications (NYSE: VZ) is a local exchange telephone company formed by the merger of Bell Atlantic, a former Bell Operating Company, and GTE, which was the largest independant local exchange...
Categories: Corporation stubs | Communications companies of the United States | Defunct companies | Telephone companies | Public Utilities ...
Categories: Corporation stubs | Communications companies of the United States | Defunct companies | Telephone companies | Public Utilities ...
G4 may refer to: PowerPC G4 – a microprocessor branding used by Apple Computer PowerMac G4 Power Mac G4 Cube PowerBook G4 iMac G4 eMac G4 Mac mini (not branded with the G4, but uses this CPU) Gulfstream 400 and 450 – a private jet G4 (television) – a videogame-themed channel owned...
TechTV (May 11, 1998 - May 28, 2004) was a 24-hour cable and satellite television channel based in San Francisco, California, featuring news and shows about computers, technology, and the Internet. ...
- Vodafone; with Mannesmann (completed February 2000) ($130 billion) ([7])
- BP; with Amoco (completed August 1998) ($110bn)
A satellite composite image of Europe Europe is geologically and geographically a peninsula, forming the westernmost part of Eurasia. ...
Vodafones corporate logo is the outline of a SIM card Vodafone is a multinational mobile phone operator with headquarters in Newbury, Berkshire, United Kingdom and Düsseldorf, Germany. ...
BP (formerly British Petroleum and briefly known as BP Amoco) (NYSE: BP) is a petroleum company headquartered in London, and one of the top four oil companies in the world (along with Shell, ExxonMobil, and Total). ...
Amoco was a United States oil company formed from the dissolution of Standard Oil. ...
You may be looking for the Sega Corporation which is still maintained on its own article. ...
This article is about the video game company. ...
SQUARE ENIX (Japanese: スクウェア・エニックス) is a Japanese producer of popular video games and manga. ...
Square Co. ...
Enix was a company that produced Japanese video games and mangas. ...
See also Divestment (divestiture) is a term in finance and economics. ...
Poison pill is a term referring to any strategy, generally in business or politics, which attempts to avoid a negative outcome by increasing the costs of that outcome to those who seek it. ...
A takeover in commerce refers to one company (the acquirer) purchasing another (the target). ...
Accounting The International Accounting Standard 22, Business Combinations, became effective for annual financial statements for periods beginning on or after 1 January 1995. ...
The International Accounting Standard 22, Business Combinations, became effective for annual financial statements for periods beginning on or after 1 January 1995. ...
Data Thomson Financials standard league tables are rankings of Investment Banks in terms of the dollar volume of deals they work on. ...
Lists This is a list of some of the major banking company mergers since 1950 in the U.S. References Stephen A. Rhoades, Bank Mergers and Industrywide Structure, 1980-1994, Washington: Board of Governors of the Federal Reserve System, January 1996. ...
External links
Academic Research Institutions
European Union - FT.com / World / US - EU agrees rules to ease cross-border mergers - November 26 2004
- EU Approves Rules For Cross-Border Mergers - November 25, 2004
- CEPS Articles - The Challenge of the 13th Takeover Directive in the EU - March 2003
- Debevoise | Publications - The European Commission Tries Again - October 10, 2002
Magazines - Mergers & Acquisitions
- TheDeal.com
- M&A Asia
- Merger & Acquisition Report
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