Chapter 12 Mergers and Acquisitions.docx - Chapter 12...

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Chapter 12 Mergers and AcquisitionsMerger- a consolidation of two organizations into a single organization.3 Categories of mergers:1.Horizontal Merger- the merging of 2 competitors2.Vertical Meger- the merger of a buyer and seller or supplier3.Conglomerate Merger- the merger od two organizations competing in different marketsConsolidation – the joining of two or more organizations to form a new organizationTakeover – one company acquiring another companyThe Urge to MergeCompanies merge for three reasons:Strategic Benefits, Financial Benefits, and/or the needs of the CEOor managing team.Strategic BenefitsOperating Synergy – the cost reductions achieved by economies of scales produced by a merger oracquisitionVertical integration – the merger or acquisition of two organizations that have a buyer-seller relationshipHorizontal integration – the merger or acquisition of rivalsFinancial BenefitsFinancial advantages of merging may include:Organizations expect to reduce the variability of the cash flow of their own businessOrganizations expect to use funds generated by their own mature (or cash cow) businesses to fundgrowing businessesThere may be tax advantages to the takeover - which vary by countryIt is expensive to enter new markets and to develop new products
•Astute corporations may analyze the financial statements of a company and decide that the company isundervaluedThe overriding goal is toincrease the shareholders' wealth.Management NeedsThe theory here is that managers seek to acquire firms for their own personal motives, and economicgains are not the primary consideration.Theories include:•Incentives or payoffs to the CEO are more important than the interests of the stockholders•Unconscious motives of CEO's: A need to prove oneself

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Term
Fall
Professor
SarahGayer
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