Takeovers and mergers (слияние и поглощение)

Introduction
1 Theoretical bases of merges and acquisition
1.1 Distinction between Mergers and Acquisitions
1.2 Types of acquisition
1.3 M&A motivation
Conclusion
Glossary
Appendix

Takeovers and mergers (слияние и поглощение)

Process Theory: Mangers have only limited information and base decisions on imperfect information.
Raider Theory: Managers creating wealth transfers from the stockholders of the companies they bid for.
Disturbance Theory: Merger waves are caused by economic disturbances4.
The lessons learnt from the 6 mergers featured in The Economist articles
1. Over half of TOMs had destroyed shareholder value, and a further third had made no discernible difference. In other words, a one in 6 chance of increasing shareholder
2. Defensive TOMs are not a great idea, companies escaping a threat often import its problems into the marriage.
4. Have a clear strategy for after the merger including who is getting what job thus avoiding the cancerous uncertainty (Citicorp and Travelers).
5. Murphy’s law is at work, the time you are the weakest, post merger the industry is likely to have a major crisis thus it is best undertaken during time of stable growth.
6. As The Economist stated trying to merger two distinct cultures is “like herding cats”. Arranged marriages need similar backgrounds, culture, and complementary styles to work.
7. Acquisition and merger companies may not have many staff who have worked in senior positions in companies who have managed successful mergers, it would be a good idea to look at the last 10 TOM’s they were involved with and assess how accurate their forecasts were.
8. Severance packages can create further wastage as staff leave before generous severance terms disappear.
10.Appearances count, joint CEOs need to be able to work together although eventually only one CEO and one company will survive.
11.Beware of share options being the incentives for a merger (the executives can cash up and leave the shareholders with the infant with soiled nappies).
12.Do not take employees loyalty for granted.
13.Have all integration projects report through every 4 to 6 weeks to a “council”.
14.Merging the operations will distract management from the basic task of making money5.
The effects of M&A on firm performance have been widely studied in the corporate finance literature. However, the findings on productivity gains from M&A are mixed. These depend on the productivity effect relative to which plants are examined, namely acquired plants, acquiring plants, or the composite firm. Overall, a positive productivity effect is obtained for all asset transactions including both partial acquisition and M&A. On the other hand, Schoar (2002) found a positive productivity effect of acquisitions on acquired plants, a negative effect on incumbent plants, and an insignificant effect overall.
The studies on M&A are related to the issue of a diversification discount: diversifying firms have lower value than standalone firms. Diversification can be done through M&A. Many empirical studies confirm the discount, but Campa and Kedia (2002) show that the diversification discount is due to the selectivity bias. They find a diversification premium after controlling for the endogeneity. Since M&A choice is endogenous, the same implication can be applied.
Firms’ productivity is related to their decision to access foreign markets. In the international trade literature, it is shown that productive firms tend to export, and more productive firms tend to conduct direct investment in developed. On the other hand, firms starting to export do not necessarily become productive. There can be a significant difference between effects of M&A and exporting on productivity because of synergy gains from M&A. It is reasonable to consider that firms learn more easily from partners than from markets. Their efficiency might increase due to learning from foreign partners6.
One of the basic motives of merges is synergic effect - strengthening of efficiency at the expense of association. 7reception synergic effect is reached at the expense of growth of incomes and decrease in costs of the incorporated company which can be expressed in:
–decrease costs at the expense of transition to the internal prices between the company-purpose and the buyer. More often decrease is reached at vertical integration, between the companies working in one technological chain;
–economy on constant costs at the expense of optimization of organizational structures and use of modern technologies of management. As a rule, participants of the transaction possess a number of similar or duplicating divisions. Creation of uniform division which will work in interests of two companies, or transfer of its functions to the company-initiator allows to avoid duplication. More often the accounts department and financial service, marketing and advertising department, department of sales concern such divisions. Economy on constant costs of a theme more than above their share in expenses of participants of the transaction;
–achievement of a financial synergy at the expense of optimisation of financial structure, tax payments and a control establishment over financial streams of the company-purpose. Often enough company-initiator of the transaction works in highly remunerative branch of economy (oil and gas sector, metallurgy branch) and has superfluous monetary streams. At carrying out of transactions of conglomeratic or other type by such company there is a redistribution of superfluous liquidity in favour of other effective kinds of activity that allows to achieve an internal diversification of the capital in corporation;
– Usage of more perfect "know-how" of production, etc.
2. As motive of merge management efficiency increase can act:
- Acquisition of inefficient firm - problems and firm failures frequently lie in management sphere: absence of strategic thinking at a management, the short-sighted market policy, inability of selection and the analysis of the necessary information;
- Transfer of management by the proprietor - a situation when the proprietor operating firm, wishes to depart from affairs or its interests move to other spheres of business.
3. The aspiration to capitalisation growth also can push the companies to merge:
- Placing of available assets - one of firms can place the available assets by acquisition of other company (motive, characteristic for conglomeratic merges);
- The speculative motive - capitalisation growth promotes share price increase, interests of owners of the companies can be directed not on activity continuation, and on reception of the additional income of sale of actions
4. Many merges represent the tool of competitive strategy:
- Strengthening of the market power - increase in a market share, promotes acquisition of a leading position and reception of competitive advantages. Not all advantages and results of transactions can be estimated immediately financial market, but promote firm growth in the future.
5. Acquisition goodwill as one motives conglomerate merges. As the important motive for conglomerate merges acquisition goodwill can serve the company-purpose. goodwill the companies are intangible actives, inseparable from the company which basis is the information and knowledge.
Drawing 2 The economic gains received at given strategy8
Drawing 3 - Motives of merges and acquisitions
The purposes of the buying company at carrying out of the transaction of merger in its any form is reception of the so-called award of absorption. The merger n award represents a difference between the price of the repayment of one action at carrying out of the transaction of merger and a current market price of this action at the moment of promotion by offer campaign-buyer on purchase (the tender offer). The above the absorption award, the is more probability of that the company-purpose will agree to the tender offer of the company-buyer. However it is impossible to consider the consent of the absorbed company as criterion of success of the transaction9.
On the one hand, the strategy of re-structuring of the company allows to enter quickly on the new markets; to receive strategic non-material actives and scarce resources which it is difficult also at times it is impossible to create at the expense of internal reserves; to raise capitalisation of business for the purpose of an exit on the share markets, but, on the other hand, merge/absorption transactions are characterised by high complexity of their organisation, investment and considerable degree of uncertainty of results.
Conclusion
Merger occurs when one firm assumes all the assets and all the liabilities of another. The acquiring firm retains its identity, while the acquired firm ceases to exist. A majority vote of shareholders is generally required to approve a merger. A merger is just one type of acquisition. One company can acquire another in several other ways, including purchasing some or all of the company's assets or buying up its outstanding shares of stock.
In general, mergers and other types of acquisitions are performed in the hopes of realizing an economic gain. For such a transaction to be justified, the two firms involved must be worth more together than they were apart. Some of the potential advantages of mergers and acquisitions include achieving economies of scale, combining complementary resources, garnering tax advantages, and eliminating inefficiencies. Other reasons for considering growth through acquisitions include obtaining proprietary rights to products or services, increasing market power by purchasing competitors, shoring up weaknesses in key business areas, penetrating new geographic regions, or providing managers with new opportunities for career growth and advancement. Since mergers and acquisitions are so complex, however, it can be very difficult to evaluate the transaction, define the associated costs and benefits, and handle the resulting tax and legal issues.
In principle, the decision to merge with or acquire another firm is a capital budgeting decision. But mergers differ from ordinary investment decisions in at least five ways. First, the value of a merger may depend on such things as strategic fits that are difficult to measure. Second, the accounting, tax, and legal aspects of a merger can be complex. Third, mergers often involve issues of corporate control and are a means of replacing existing management. Fourth, mergers obviously affect the value of the firm, but they also affect the relative value of the stocks and bonds. Finally, mergers are often "unfriendly" or "hostile."
Glossary
Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity
Слияния и поглощение (сокращал M&A) понятие относящееся к корпоративной стратегии, корпоративным финансам и управлению касающееся покупки, продажи и объединения различных компаний, которые могут стать источником финансирования или помочь компании в развитии в данной отрасли.
Shareholder value is a business buzz term, which implies that the ultimate measure of a company's success is to enrich shareholders.
Ценность акционера - деловой термин, который подразумевает, что окончательная мера успеха компании должна обогатить акционеров
Productivity is a measure of output from a production process, per unit of input. For example, labor productivity is typically measured as a ratio of output per labor-hour, an input
Производительность – измеряется в объеме производства продукции, на единицу затраченного сырья.
Diversification in finance is a risk management technique, related to hedging, tеhat mixes a wide variety of investments within a portfolio. It is the spreading out of investments to reduce risks.
Диверсификация техника риск-менеджмента, связанная с хеджированием, которое объединяет различные направления инвестиций в пределах портфеля.
A synergy is where different entities cooperate advantageously for a final outcome. If used in a business application it means that teamwork will produce an overall better result than if each person was working toward the same goal individually
Синергия подразумевает, что различные юридические лица в процессе сотрудничества получают выгоды. Означает, что взаимодействие приведет к полному лучшему результату, чем если бы каждая компания добивалась цели поодиночке
Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs