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Unformatted text preview: ProFile 3 UNIT 8 Staying competitive
MERGERS AND TAKEOVERS
A merger occurs when two companies decide
to become a single company by mutual
consent. A takeover occurs when a bidder
manages to acquire a controlling interest of the
shares in the target company. Sometimes the
line between them is unclear. Takeover bids are
often perceived as hostile by the management
of the business which is being targeted.
However they may be welcomed more warmly
by its shareholders, as in the frenzy leading up
to takeover, share prices in the firm under
attack may rise rapidly as the competition to
buy them heats up.
TYPES OF MERGER
A producer of computers may wish to acquire
a company which produces components in
order to guarantee a steady supply. This is an
example of a vertical merger, because it moves
towards establishing the vertical integration of
the business. In other instances, a business
might buy a competitor in the same field.
Reasons for this could be to obtain greater
market share and penetration, to acquire the
company’s know-how and name, or to get rid
of a rival. This is called a horizontal merger. and expertise in mobile technology. Other
joint ventures could involve businesses with
different areas of expertise working as a
consortium on large civil-engineering projects.
For instance, in constructing a hydro-electric
dam one firm would provide the turbines,
another builds the structure, while a third
provides the power stations and lines.
BUZZ WORDS: SYNERGY AND
Synergy is often used as a justification for
mergers or takeovers. It is commonly expressed
as the 1+1=3 effect. The theory goes that
together businesses will be stronger and more
effective than the sum of their separate parts. A
maker of tennis racquets which buys a maker
of tennis balls will be able to use the same sales
force for both ranges and pool their
A symbiotic relationship is mutually beneficial
and supportive. Symbiosis is used as a
justification for companies working together. Loss in shareholder value following a merger is
an extremely common phenomenon, yet
interest in mergers persists. One reason may be
that the consultants employed to study the
merger make enormous fees on completion of
the deal – Many consultants have M & A
departments (Mergers and Acquisitions).
Joint ventures should not be confused with
mergers. They occur when two companies
work together on a given project or for a
period, without merging. Siemens of Germany
and Fujitsu of Japan are a successful example
of this. Both companies recognized a
complementary fit between Fujitsu’s technical
innovation, and Siemens’ engineering skills See the ProFile Student’s site: www.oup.com/elt/profile Photocopiable © Oxford University Press ...
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This note was uploaded on 12/12/2010 for the course RBS BCN taught by Professor Dekoe during the Spring '10 term at Rotterdam Business School.
- Spring '10