31 the analyses of the types and methods of mergers

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3.1. The analyses of the types and methods of mergers and acquisitions and the motivations of their emergence. As the mergers and acquisitions constitute the context of our study, it is primordial to understand how these activities happen, the different types and models of M&A and finally the motivations which lead the companies to merge with another one or to acquire some other companies. Patrick A. Gaughan (2007) in his book writes about the mergers and acquisitions expenditures since the 20th century to nowadays by distinguishing five different waves that are illustrated by examples of mergers and acquisitions at each moment. Moreover, he presents the different types of mergers and acquisitions: horizontal and vertical transactions and also the conglomerate mergers. Plus, according to the author two major motivations dominate the activity of merger or acquisition: the growth through taking advantage of the acquired company‟s resources and the synergy respecting the financial math equation that shows that “2 + 2 = 5”. Also, as opposed to the expand target, Gaughan emphasizes on the different alternatives which are available to achieve “corporate restructuring”. Also, the author points out the mistakes and failures resulting from the mergers and acquisitions. Plus, Gaughan explains, in this book, every type of corporate restructuring, including mergers and acquisitions, reorganizations, joint ventures, divestitures, leveraged buyouts. He examines the key strategies and motivating factors that arise from the “corporate restructurings”. Finally, he presents the best offensive and defensive practices for hostile takeovers. Howard Finch (2008), on the other hand, emphasizes on the possible motivations that may result from a merger or an acquisition. According to the author, the economies of scales whereby the companies can produce cheaper are the main reason. He describes several additional motivations for firms to merge or acquire other companies: a similar idea to the
19 economies of scale is the economies of vertical integration that are carried out either to take advantage of the targeted firm‟s business operations such as raw materials access or/and the distributions channels or to increase the market share. Moreover, the author employed a third term in his discussion, the “takeover” and the different types of takeover defences. He totalises seven “defensive mechanisms” in order to avoid the control attempt from an outside firm. The reaction of the firms management that are targeted depends on the hostile or friendly character of the attempt. Chunlai and Findlay (2001) give in their article some insights related to the definitions of cross-borders merger and acquisition, and establish a classification of them. They focus their research on the Asia and Pacific side of the world. However, the authors start the discussion with a clear distinction between mergers and acquisitions. First, they refer to mergers as “merger by absorption” whereby one comp

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