MERGER AND ACQUISITION

INTRODUCTION

We have been learning about the companies coming

together to from another company and companies taking over the
existing companies to expand their business.

With recession taking toll of many Indian business and the

feeling insecurity surging over our businessmen, it is not
surprising when we here about the immense numbers of
corporate restructurings taking lace, especially in the last couple
of years. Several companies have been taken over and several
have undergone internal restructuring, whereas certain
companies in the same field of business have found it beneficial
to merge together into one company.
In this context, it would be essential for us to understand what
corporate restructuring and mergers and acquisitions are all
about.

All our daily newspapers are filled with cases of mergers,

acquisitions, spinoffs, tender offers and other forms of corporate
restructuring. Thus important issues both for business decision
and public policy formulation have been raised. No firm is
regarded safe from a takeover possibility. On the more positive
side mergers and acquisitions may be critical for the health
expansion and growth of the firm. Successful entry into new
product and geographical markets may require mergers and
acquisitions at some stage in the firms development.

Successful competition in international markets may depend

on capabilities obtained in a timely and efficient fashion through
mergers and acquisitions, many have argued that mergers
increase value and efficiency and move resources to their highest
and best uses, thereby increasing shareholder value.

To opt for a merger or not is a complex affair, especially in

terms of the technicalities involved. We have discussed almost all
factors that the management may have to look into before going
for merger.

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Considerable amount of brainstorming would be required by

the managements to reach a conclusion. E.g. a due diligence
report would clearly indentify the status of the company in
respect of the financial position along with the net worth and
pending legal matters and details about various contingent
liabilities. Decision has to be taken after having discussed the
pros and cons and of the proposed merger and the impact of the
same on the business, administrative costs benefits, and addition
to shareholders value, tax implications including stamp duty and
last but not the least also on the employees of the transfer or
transferee company.

The mergers and acquisitions are one of the most talks

about events of the corporate sector. There are several purposes
of mergers and acquisitions. Some of these are business purposes
and some are political. But the general purposes of mergers and
acquisitions are to generate more profit for the newly built
companies and to diversify their operational domains.

At the same time, expanding the companys business in

different geographical regions is also a reason of mergers and
acquisitions.

Reasons behind Mergers and Acquisitions: Through merger of

companies of the same sector, the manufacturing costs can be
reduced and sale of the products can be boosted. At the same
time, growth of the market share and absence or elimination of a
major competitor from the market can change the whole scenario.
Each and every company has some regular clients and merger
and acquisition of the companies can provide the new company
with an enlarged customer base than what was there before the
merger. All these will help the company to make more profits.

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MERGERS

A merger is a transaction that

results in the transfer of ownership and
control of a corporation. When one
company purchases another company
of an approximately similar size. The
two companies come together to
become one. Two companies usually
agree to merge when they feel that
they can do something together that
they cannot do one on their own.

Merger Definition: "Merger is absorption of one or more

companies by a single existing company."

Meaning of Merger:

Acquiring company: It is a single existing company that

purchases the majority of equity shares of one or more
companies.

Acquired companies: Are those companies that surrender the

majority of their equity shares to an acquiring company.

Merger is a technique of business growth. It is not treated as

a business combination. Merger is done on a permanent basis.
Generally, it is done between two companies. However, it can also
be done among more than two companies. During merger, an
acquiring company and acquired companies come together to
decide and execute a merger agreement between them.
After merger, acquiring company survives whereas acquired
companies do not survive anymore, and they cease (stop) to
exist. Merger does not result in the formation of a new company.
The management of acquiring company continues to lead (direct)
the merger.

Merger is defined as combination of two or more companies

into a single company where one survives and other lose their

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corporate existence. The survivor acquires all the assets as well

as liabilities of the merged company or companies.

Generally, the surviving company is the buyer, which retains

its identity, and the extinguished company is the buyer, which
retains its defined as amalgamation. Merger is the fusion of two
or more existing companies. All assets, liabilities and the stock of
one company stand transferred to Transferee Company in
consideration of payment in the form of:

1. Equity shares in different transferee company.

2. Debentures in the transferee company.
3. Cash and
4. A mix of above modes

BENEFITS OF MERGERS

1. Diversification of products and services offering.

2. Increase in plant capacity.
3. Large market share.
4. Reduction of financial risk.
5. Utilization of expertise and research and development.

WHY DO MERGERS FAIL?

1. Lack of human integration

2. Mismanagement of cultural issues
3. Lack of communication.

Merger or acquisition depends upon the purpose of the offer or

company it wants to achieve. Based on the offer or objective
profile, Combinations could be vertical, horizontal, circular and
conglomeratic as precisely describe below with reference to the
purpose in view of the company

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TYPES OF MERGERS:

1. Horizontal
2. Vertical
3. Conglomerate
4. Concentric

HORIZONTAL MERGERS

1. Horizontal mergers are those mergers where the companys

manufacturing similar kinds of commodities or running
similar type of businesses merge with each other.

2. Examples of Horizontal Merger

Lipton India and Brooke Bond.
Bank of Madura with ICICI Bank.
BSES Ltd with Orissa Power Supply Company.
Associated Cement Companies Ltd with Damodar Cement.

VERTICAL MERGERS

1. A merger between two companies producing different goods

or services.

2. Example of Vertical Merger

Time Warner Incorporated, a major cable operation, and
the Turner Corporation, which produces CNN, TBS, and other
programming.
Pixar-Disney Merger

CONGLOMERATE MERGERS

1. A merger between firms that are involved in totally unrelated

business activities. Two types of conglomerate mergers:
Pure conglomerate mergers involve firms with nothing in
common.

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Mixed conglomerate mergers involve firms that are looking

for product extensions or market extensions.

2. Example of Conglomerate Merger

Walt Disney Company and the American Broadcasting
Company.

CONCENTRIC MERGER

1. A merger of firms which are into similar type of business.

2. Example of Concentric Merger

Nextlink is a competitive local exchange carrier offering

services in 57 cities and building a nationwide IP network.
Concentric, a national ISP, offers dedicated and dial-up
Internet access, high-speed DSL and VPN services across the
U.S. and overseas.

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In the above example, Company 'A' and Company 'B' are

operating (existing) in the market. Company 'A' is an acquiring
company, and Company 'B' is getting acquired by Company 'A'. In
other words, Company 'B' gets merged with Company 'A'.

In this example of merger, Company 'A' will purchase the

majority of equity shares (ownership shares) of Company 'B'.
Company 'A' will take over the assets and liabilities of the
Company 'B'. The shareholders of the Company 'B' will be given
the shares of Company 'A'. The acquiring Company 'A' will
continue to operate (function) by its former name.

Some recent examples of well-known mergers are as follows:

1. British Salt operating in UK merged with TATA Chemicals

based in India.
2. Zain Telecommunications operating in Africa merged with
Bharti Airtel Limited based in India.
3. Bank of Rajasthan operating in India merged with ICICI Bank
(India).

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ACQUISITIONS

When one company takes over another and clearly

established itself as the new owner,
the purchase is called an acquisition.
Acquisition is generally considered
negative in nature

Acquisition in general sense is

acquiring the ownership in the
property. In the context of business
combinations, an acquisition is the
purchase by one company of a
controlling interest in the share of
another existing company.

In acquisition the firm which

acquires another firm is known as Acquiring company while the
company which is being acquired is known as Target Company.
The acquiring company is more powerful in terms of size,
structure and operations, which overpower or takes over the
weaker company i.e. the target company.

Most of the firm uses the acquisition strategy for gaining

instant growth, competitiveness in a short notice and expanding
their area of operation, market share, profitability, etc. The types
of Acquisition are as under:

1. Hostile

In business, a takeover is the purchase of

one company (the target) by another (the acquirer, or bidder). A
"hostile takeover" allows a bidder to take over a target company
whose management is unwilling to agree to a merger or takeover.
A takeover is considered "hostile" if the target company's board
rejects the offer, and if the bidder continues to pursue it or the
bidder makes the offer directly after having announced its firm
intention to make an offer.

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2. Friendly

A "friendly takeover" is an acquisition which is approved

by the management. Before a bidder makes an offer for
another company, it usually first informs the
company's board of directors. In an ideal world, if the board
feels that accepting the offer serves the shareholders better
than rejecting it, it recommends the offer be accepted by the
shareholders.

3. Buyout

A buyout acquisition is an investment transaction by

which the ownership equity of a company, or a majority
share of the stock of the company is acquired. The acquirer
thereby "buys out" the present equity holders of the target
company. A buyout will often include the purchasing of the
target company's outstanding debt, which is referred to as
"assumed debt" by the purchaser.

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Definition:

The purchase of one corporation by another, through either

the purchase of its shares, or the purchase of its assets .There's
only one real way to achieve massive growth literally overnight,
and that's by buying somebody else's company. Acquisition has
become one of the most popular ways to grow today. Since 1990,
the annual number of mergers and acquisitions has doubled,
meaning that this is the most popular era ever for growth by
acquisition.

Companies choose to grow by acquiring others to increase

market share, to gain access to promising new technologies, to
achieve synergies in their operations, to tap well-developed
distribution channels, to obtain control of undervalued assets, and
a myriad of other reasons. But acquisition can be risky because
many things can go wrong with even a well-laid plan to grow by
acquiring:

Cultures may clash, key employees may leave, synergies

may fail to emerge, assets may be less valuable than perceived,
and costs may skyrocket rather than fall. Still, perhaps because of
the appeal of instant growth, acquisition is an increasingly
common way to expand.

SYNERCY RELATED TO ACQUISITION:

1. Economics of scale
2. Taxation
3. Staff reduction
4. Acquiring new technology
5. Improved market reach and industry visibility.

METHODS OF ACQUISITION:

An acquisition may be affected by

1. Agreement with the persons holding majority interests in the
company management like members of the board or majority
shareholders commanding majority of voting power.

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2. Purchase of shares in open market.

3. To make takeover offer to the general body of shareholders.
4. Purchase of new shares by Private treaty.
5. Acquisition of shares capital through the following forms of
considerations viz.

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REASONS FOR MERGER AND ACQUISITION

1. Synergy

The most used word in M&A is synergy, which is the idea

that by combining business activities, performance will
increase and costs will decrease. Essentially, a business will
attempt to merge with another business that has
complementary strengths and weaknesses.
2. Diversification / Sharpening Business Focus

These two conflicting goals have been used to describe

thousands of M&A transactions. A company that merges to
diversify may acquire another company in a seemingly
unrelated industry in order to reduce the impact of a particular
industry's performance on its profitability. Companies seeking
to sharpen focus often merge with companies that have deeper
market penetration in a key area of operations.

3. Growth

Mergers can give the acquiring company an opportunity to

grow market share without having to really earn it by doing the
work themselves - instead, they buy a competitor's business for
a price. Usually, these are called horizontal merger. For
example, a beer company may choose to buy out a smaller
competing brewery, enabling the smaller company to make
more beer and sell more to its brand-loyal customers.

4. Increase Supply-Chain Pricing Power

By buying out one of its suppliers or one of the distributors, a

business can eliminate a level of costs. If a company buys out
one of its suppliers, it is able to save on the margins that the
supplier was previously adding to its costs; this is known as
a vertical merger. If a company buys out a distributor, it may
be able to ship its products at a lower cost.

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5. Eliminate Competition

Many M&A deals allow the acquirer to eliminate future

competition and gain a larger market share in its product's
market. The downside of this is that a large premium is usually
required to convince the target company's shareholders to
accept the offer. It is not uncommon for the acquiring
company's shareholders to sell their shares and push the price
lower in response to the company paying too much for the
target company.

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DIFFERENCES BETWEEN MERGER AND ACQUISITION

The following are the major differences between Merger and

Acquisition:

1. A type of corporate strategy in which two companies

amalgamate to form a new company is known as Merger. A
corporate strategy, in which one company purchases
another company and gain control over it, is known as
Acquisition.

2. In the merger, the two companies dissolve to form a new

enterprise whereas in acquisition, the two companies do not
lose their existence.

3. Generally, two companies of the same nature and size go for

merger. Unlike acquisition, in which the smaller company is
overpowered by the larger company

4. In a merger, the minimum numbers of companies involved

are three, but in acquisition, the minimum number of
companies involved is 2.

5. The merger is done voluntarily by the companies while

acquisition is done either voluntarily or involuntarily.

6. In a merger, there are more legal formalities as compared to

acquisition.

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EXAMPLES

1. Disney & Pixar

Mickey and Nemo. Pinocchio and Buzz Light-year. Cinderella

and Lightning McQueen. The merger of the legendary Walt Disney
and everything-we-create-kids-adore Pixar was a match made in
cartoon heaven. Disney had
released all of Pixars movies
before, but with their contract
about to run out after the
release of Cars, the merger
made perfect sense. With the
merger in 2006, the two
companies could collaborate
freely and easily.

Did the merger work? Well, take a look at the successful

movies that Disney-Pixar has given birth to since: WALL-E,
Up, Brave and Inside Out. The merger didnt just enable the two
to collaborate, but also helped to breath new air into Disneys
other divisions. First Tangled and more recently Frozen have
garnered huge attention at the box office and beyond,
with Frozen becoming the fifth-highest grossing movie ever!

2. New York Central & Pennsylvania Railroad

Corporate mergers dont always work out, and in the history

of mergers and acquisitions, Penn Central sticks out as one of the

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poorest. In 1962, a time when

transportation trends were shifting
towards super highways and air-
travel, the Pennsylvania Railroad
Company and the New York
Central Railroad Company decided
to merge and form Penn Central.
The merger was officially
approved in 1968, only for it to file
for bankruptcy just two years later.

With 4.6 billion in assets at the onset, it seemed shocking

this could happen. But strict regulations, inflating labor costs and
executive clashing all came together like a corporate Bermuda
triangle. Thousands were affected by the bankruptcy, and its safe
to say this was one merger that utterly flopped.

3. Yahoo & Facebook (almost!)

Sometimes bad
mergers or acquisitions
can be avoided, with one
company choosing to
stick it out on their own.
In 2006, Yahoo saw the
blossoming Facebook as a
youngster with a
promising future.

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Yahoo made an offer to acquire the company for $1 billion,

but Facebook gave a hard no. CEO Mark Zuckerberg was just
about to launch Facebooks newsfeed and anticipated the
company would be worth much more than Yahoos offer.

He couldnt have been more right. Today Facebook is worth

around $38 Billion, earning $12.47 billion in 2014 alone!

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CASE STUDY

BMW AG AND THE ROVER COMPANY

The Rover Company was a British Car manufacturing

company founded in 1878 as Starley & Sutton Co. of Coventry
and originally produced bicycles and motorbikes. It produced its
first car in 1904 under its now famous marquee of the Viking Long
ship. After a string of mergers, nationalization and takeovers, it
became a part of the British Leyland Motor Corporation in 1968.
The group was sold to British Aerospace in 1988 and in 1994, the
control of the group was passed to BMW of Germany.

BMW AG is a German automobile, engine and motorcycle

manufacturing company which began life as a aircraft engine
company in the early 1900s. In 1923, it began manufacturing its
first motorcycles and started car production in the 1928 after
acquiring the Eisenach vehicle factory [key-9]. BMW acquired the
Rover Company in 1994 for 800mn. After investing about 2bn
and getting no synergies, it sold the company in 2000 to Phoenix
Consortium for 10.

The Acquisition

BMW had a number of motives behind the acquisition of the

Rover Company. The primary among them was to grow. BMW
wanted to increase their market spread while achieving a greater
volume spread [key-16]. They saw Rover, which came up for sale
at the right time as the perfect deal at that time. Rover had
acquired significant cost advantages due to its association with
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Japanese production methods. They also had the front-wheel

driving and the 4 x 4 technology that BMW wanted to acquire. The
price BMW paid was deemed to be a bargain as the cost to
develop the technology and the production methods from scratch
were significantly more.

Another major factor in the acquisition was the low level of

cost in the British manufacturing sector compared to the costs in
Germany [key-15]. These costs, which were 60% lesser in Britain,
had the ability to substantially reduce BMW costs. Rover also has
in its repository brands such as Mini and MG Rover, which offered
BMW the chance to exploit new markets and segments.

Analysis

Behind the acquisition of Rover by BMW, there was certainly

a strategic motive and proper plans of gaining synergies.
However, the acquisition was unsuccessful because they didnt
plan the entire process well. Palmer(2003) quotes both Kloss and
Boorn in describing how the strategic plan got stuck in the upper
echelons of the hierarchy due to lack of communication and
coordination. BMWs integration plan suggested a three phase
process in which the initial two years were wasted in just
providing financial help without any integration of the two
companies. It was 3-4 years before any concrete integration plans
began and only in 1999 were the two companies fully integrated.

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Another important problem for this deal was the linguistic

differences between the two companies. Although BMWs top
management could do business in English, the engineers and the
middle managers were unable to do so. This created a lack of
communication problem which eventually delayed the integration
process. There were also substantial differences between the
business culture of BMW and Rover. As Batcheler(2001) points
out, the German direct approach was in contrast to the more
relaxed approach followed by the British.

Sirower (1997) suggested that it is incorrect to judge the

soundness of an acquisition based on what it would have cost to
develop that business from scratch. For this case, it seems to be
this same problem as BMWs decision was partly based on the
substantial cost difference between developing the technologies
in house and buying it from Rover. BMW didnt achieve the
synergies and ended up spending 2bn and sold the company off
to Phoenix Consortium for a token sum of 10.

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ADIDAS REEBOK (MERGER)

Introduction:

Footwear is no longer viewed as a commodity that just offers

protection for feet. Today, the footwear trade is a vast and
dynamic operation involving huge economies of scale. On August
3, 2005, Adidas-Salomon AG announced its plans to buy all
outstanding shares of Reebok International Ltd.'s stock at $59.00
per share, for a total of $3.8
billion. Upon announcement,
Reebok stock rose 30% while
Adidas climbed 7%. As stated
by Herbert Hainer, CEO of
Adidas, "This is a once-in-a-
lifetime opportunity to
combine two of the most
respected and well-known
companies in the worldwide
sporting goods industry.
Together, we will expand our
geographic reach, particularly in North America, and create a
footwear, apparel and hardware offering that addresses a broader
spectrum of consumers and demographics" (Adidas.com).

A primary goal of the acquisition has been to challenge

industry leader Nike for a higher share of the United States
sporting goods market as well as the global sporting goods
market. The acquisition has prompted much discussion as to what
the future holds for the sporting goods industry and its major
players.

Core competencies & competitive advantage

Competitive advantage is a special edge that allows an

organization to deal with market and environmental forces better
than its competitors. Whereas, sustainable competitive advantage
is one that is difficult for competitors to imitate. This distinction is
essential when evaluating the acquisition and its effects. A

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merger of this scale is inherently complex, dealing with issues

such as global positioning of companies, corporate cultures, and
the allocation of resources.
Adidas Core Competencies

i. Technology
ii. Customer focus
iii. Brand recognition
iv. Supply chain
v. Collaboratively
competitive

Reebok Core Competencies

i. Trend Identification
ii. Ability to market to a niche
segment
iii. Women's shoe design
iv. Design expertise
v. Celebrity relationships

Combining Core Competencies

i. Adidas technology with Reebok design

ii. Adidas sports with Reebok women's market
iii. Adidas shoes with Reebok apparel
iv. Adidas global strength & Reebok US strength

Implementation

Blending the two cultures successfully (learning to work

together)
Protect the strengths of acquired company (keeping
development of both organizations separate)
Maintaining both brands (keeping established market share)
Capitalizing on supply chain economies of scale (suppliers,
manufacturing, distribution, channels)
Nurturing the partnership between technology and design
(growing market share by combining leadership areas)

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Sustainable competitive advantage

Sustainable competitive advantage cannot be reached

without the successful merging of Adidas and Reebok. Adidas
Chairman and CEO Herbert Hainer made clear that "it is important
that each of these brands must retain their own identity."

Hainer points out that Reebok's focused strategy is on the

engagement of youth through sports, music, and technology. On
the other hand, Adidas' focus is on superior technology and
performance, coupled with a large international presence. Adidas
will benefit from increased distribution in North America, where
Reebok already has a significant presence.

The addition of Reebok will enhance not only its position

among the top US distributors like Foot Locker and Dick's, but will
also give Adidas-Reebok more power over promotions and in-store
displays. Increasing its presence is the key to achieving
sustainable competitive advantage, because the increased
presence further engrains the most important advantage in this
industry, brand name.

Market Share

In 2004,according to the Sporting Goods Manufacturers

Association International
In the U.S., Nike reigns supreme. In 2004, it had about 36%
market share in the athletic footwear market.
Adidas has 8.9% of the U.S. market and Reebok 12.2%
The U.S. ranks as the worlds biggest athletic shoe market,
accounting for half the $33 billion spent globally each year
on athletic shoes.

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Adidas-Reebok SWOT Analysis (After the merger)

Strengths

More products for different customers

Increase in product line
Acclivity in market share
Now both upper and middle priced markets are covered.
Shared R&D, Patents, technology & innovations

Weaknesses

Differing values among management

Complexity of joining two corporate cultures
Both companies belong to different countries

Opportunities

Reduction in costs
Decreased competition
Cross-over promotion by sponsored athletes
Enter to new market/Segments

Threats

Nike.
Nike's possible acquisition of Puma.
Danger of cannibalization between the two separate brands.

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Post-merger performance

7th March, 2007 -Adidas Group's motto is "Impossible Is

Nothing." But since the No. 2 sporting-goods maker announced in
August, 2005, that it would snap up rival Reebok for $3.8 billion to
gain a firmer footing in the U.S. and challenge market leader Nike
(NKE), the company has yet to prove that the combo will work.

True to its mantra, however, Adidas says it's racing flat-out

to make its tie-up with Reebok a winner. The company has closed
factories in Indonesia and is repositioning the Reebok brand to
widen its appeal. "Our focus this year will be on getting Reebok
back onto a growth track," Adidas Chief Executive Herbert Hainer
said in a statement. "It's going to take time, but we're moving in
the right direction."

As part of that move, the company is ramping up its sales

and marketing efforts. It's reducing reliance on low-traffic,
shopping-mall-based outlets and placing Reebok apparel and
footwear in higher-end department stores and larger sporting-
goods ventures. Adidas has also enlisted star NFL quarterback
and Super Bowl MVP Peyton Manning, actress Scarlett Johansson,
and other famous faces to help launch a series of new products
planned in the second quarter.

The company says it expects these efforts to increase sales

of the Reebok brand this year in the "low-single-digit" range.
Adidas expects its gross margin in 2007 to be between 45% and
47%, thanks to "improvements in all three brand segments." For
the group, the company expects sales in 2007 to grow in the
"mid-single-digit" range.

Adidas-Reebok Customer Relationship Management (CRM)

Adidas-Reebok new company is driving future success by

engaging consumers with unique interactive product approaches
and rewarding point-of-sale experiences. Adidas and Reebok
brands must be competitive in this environment where consumers
make their final purchase decisions based on availability,

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convenience and breadth of product offering. There are examples

what Adidas-Reebok has done:

Product performance excellence

Adidas Group website gives their potential customer

possibility to zoom in on the product and also to see full
information even its technology. Consumer also can choose color
and size easily, the website also offer product preferences by
consumer behavior.

Price performance excellence

Adidas-Reebok has offered discount for specific product or

promotional in their website.

Transactional excellence

Process of buying is quite easy and easy to understand by

customer. Adidas-Reebok also provides their websites with
product tracking and account managing, so that customer cans
easily tracking their order and or review their cart.

Relationship excellence

In managing their relationship with consumer, Adidas-

Reebok gives them services to subscribe their newsletter.
Customer can contact Adidas-Reebok through easy steps and if
they aren't satisfied with the product, they can refund it and the
procedure of refund is explained in their website.

Adidas-Reebok strategy towards consumer buying

behavior

There are many possible avenues to exploit in terms of sales

opportunities for these companies, the market is highly
segmented in such a way that it is important for the three to
engage in target marketing. For example, in this market of
athletic shoes, a firm can either offer an all-purpose cross-trainer

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shoe or a running shoe and a basketball shoe. While the cross-

trainer shoe has broad appeal for all consumers it does not satisfy
any consumer's needs in particular. In contrast, the running shoe
and basketball shoe combination will each satisfy a particular
market segment but will have modest appeal to the other
segment. This is the point where the particular companies must
decide whether they will individually follow a niche market or a
full-line strategy. To make this decision, the firms must weigh the
cost of offering an additional product and the revenue generated

Conclusion:

Thepurpose of this study is to provide an analysis of the

newest merger in the footwear and apparel industry between
Adidas and Reebok. The Adidas-Reebok merger vaulted the
combined entity into the second place in the American athletics
shoe market behind Nike. The takeover of Reebok doubled the
German group's North America sales. The Adidas Group's
purchase of Reebok North America showed an obvious attitude to
ensuring that the Corporation's overall objectives will be
achieved. With the two company's combined strengths, an aim to
widen the organizations overall profile and global dominance is
now more than ever possible

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NIKE'S MERGER AND ACQUISITION STRATEGIES

Being a company that is continually seeking out sources of

competitive advantages, Nike has historically implored merger
and acquisition strategies
when the proper alliances
present themselves. The
main reason Nike implements
these plans is to ultimately
create economic value in its
exploitation of the
competitive opportunities that
a target firm creates for the
company, which in
turn increase the economic
profits for its shareholders.
Nike also implements this strategy to gain market power in
product markets and to take advantage of the potential above-
normal profits a merger and acquisition can create.

In its existence, Nike has acquired only targets that

are strategically related to its existing markets
further diversifying their economies across a wider breadth of
product offerings. Predominantly venturing into product
extension and horizontal mergers to do so. Nike's
first acquisition was in 1988 when it acquired Cole Haan that gave
the company access into the upscale footwear market. In 1994,
Nike acquired hockey product giant Bauer, but subsequently sold
this subsidiary in 2008. Nike then waited almost a decade before
its next acquisition which was surf apparel firm Hurley
International in February 2002. However in the 2000s, Nike (like
many U.S. companies during this time) was very active in
its acquisition projects. In July 2003, Nike horizontally acquired
former basketball shoe competitor Converse and its established
Chuck Taylor All Stars sneakers. In August 2004, Nike leapt into
horizontal acquisitions again with the purchase of Starter, but
turned around and sold it in 2008, the same year as Bauer. 2008

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was not all about downsizing for Nike though, as in the March of
that year Nike acquired soccer apparel titan Umbro.

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Currently, Nike owns four key subsidiaries (Cole Haan,

Hurley, Converse, and Umbro) but I would not be surprised if Nike
continues expanding on their merger
and acquisition/diversification strategy. With reported free cash
flows increasing substantially over the past decade (from $575.5
million in 2001 to $4.5 billion in 2011: an appreciation of about
680%), Nike has an awful lot of reserves at its disposal for future
merger and acquisition plans.

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CONCLUSION

Nowadays, only a few numbers of mergers can be seen,

however acquisition is getting popularity due to extreme
competition. Merger is a mutual collaboration of the two
enterprises in becoming one while acquisition is the takeover of
the weaker enterprise by the stronger one.

But both of them gain the advantage of Taxation, Synergy,

Financial Benefit, Increase in Competitiveness and many more
which can be beneficial, however sometimes adverse effect can
also be seen like increase in employee turnover, clashing in the
culture of organizations and others but these are rare to happen.

One size doesn't fit all. Many companies find that the best
way to get ahead is to expand ownership boundaries through
mergers and acquisitions. For others, separating the public
ownership of a subsidiary or business segment offers more
advantages. At least in theory, mergers create synergies and
economies of scale, expanding operations and cutting costs.
Investors can take comfort in the idea that a merger will deliver
enhanced market power.

By contrast, de-merged companies often enjoy improved

operating performance thanks to redesigned management
incentives. Additional capital can fund growth organically or
through acquisition. Meanwhile, investors benefit from the
improved information flow from de-merged companies.

M&A comes in all shapes and sizes, and investors need to

consider the complex issues involved in M&A. The most beneficial
form of equity structure involves a complete analysis of the costs
and benefits associated with the deals.

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WEBLIOGRAPHY

DePamphilis, Donald- Mergers and Acquisitions Basics

Mergers and Acquisitions
http://kalyan-
city.blogspot.in/2012/04/
http://www.entrepreneur.com/
http://www.investopedia.co
www.articlebase.com
www.quora.com
www.wikipedia.com
www.google.com

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