Chapter 3: Development Methods: Mergers And Acquisitions Flashcards
(43 cards)
Organic development characteristics
- Organic growth
- Growth of the firm’s own resources
- Investment in facilities, machinery, staff, etc
- Slow
- Similar core competencies
Inorganic development characteristics
- One firm invests in, purchases, associates with or control other firms
- Expanding a current business or enteing new ones
- Materialized in mergers, acquisitions or strategic alliances
- Fast
- Culture clash. Risk of integration failure
Inorganic development types
- Mergers
- Acquisitions
- Strategic alliances
Mergers definition
A merger is a mutually agreed decision for joint ownership between two previously separate organisations to forma combined entity
Acquisition definition
An acquisition is where an organisation purchases or takes ownership of another organisation
Motives for mergers and acquisitions
- Strategic
- Operational
Strategic motives for mergers and acquisitions
- Consolidate to remove competition and gain market power
- Create market access
- Acquire new resources and capabilities
- Size to compete in global markets
- Vertical integration advantages
Operational motives for mergers and acquisitions
- Reduce operational costs
- Fiscal incentives
- Improve the performance of the acquiring company
Types of mergers
- Pure merger
- Merger by absorption
- Merger with partial asset transfer
Pure merger
- Company A and B. Similar size
- A new company C is created
Merger by absorption
- Company B ceases to exit. The assets of company B are absorbed into company A —> A’
- A’=A+B
Merger with partial transfer
- A new company C is created
- B ceases to exist
- A still exist
Types of acquisitions
- Public takeover bid
- Strategic acquisitions
- Opportunistic acquisitions
Public takeover bid definition
A public takeover bid is a type of acqiuisition in which a company maakes an offer to purchase a public company. The acquiring company generally offers cash, stock or a combination of both in an attempt to assume control of its target.
Types of public takeover bid
- Friendly
- Hostile
Friendly public takeover bid definition
The target’s top management team recommends accepting the acquirer’s deal
Hostile public takeover bid definition
The target’s top management team refuses the acquirer’s offer. The acquirer tries to replace the target’s top management team to get the acquisition approved.
Types of strategic acquisitions
- Horizontal
- Vertical
- Related diversification
- Unrelated diversification
Types of opportunistic acquisitions
- Target company is undervalued
- Improvement in the management of the target company
Horizontal strategic acquisitions objectives
- Cost reduction through economies of scale
- Market power through reduction in competitive intensity. Regulators must approve any large horizontal integration.
Vertical strategic acquisitions objectives
- Cost reduction through economies of scope, supply chain integration and reduction of transaction costs
- Increase market power through control of distribution channels and resources, differentiation and barriers of entry
Related diversification strategic acquisitions objectives
- Cost reductions through economies of scope
- Increase market power through barriers of entry and differentiation
Unrelated diversification strategic acquisition objectives
- Financial complementarities through lower financial costs and risk management
- Increase market power through gains in reputation from the leading company
Forms of business reorganization
- Split-Up
- Spin-Off
