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MEANING
Merger
A transaction where two firms agree to integrate their operations on a relatively co-equal basis because they have resources and capabilities that together may create a stronger competitive advantage. The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock Example: Company A+ Company B= Company C.
ACQUISITION
A transaction where one firms buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of business It also known as a takeover or a buyout It is the buying of one company by another. In acquisition two companies are combine together to form a new company altogether. Example: Company A+ Company B= Company A.
i.
Merging of two organization in to one. ii. It is the mutual decision. iii. Merger is expensive than acquisition(higher legal cost). iv. Through merger shareholders can increase their net worth. v. It is time consuming and the company has to maintain so much legal issues. vi. Dilution of ownership occurs in merger.
i.
Buying one organization by another. ii. It can be friendly takeover or hostile takeover. iii. Acquisition is less expensive than merger. iv. Buyers cannot raise their enough capital. v. It is faster and easier transaction. vi. The acquirer does not experience the dilution of ownership.
i. Increase Market Share. ii. Economies of scale iii. Profit for Research and development. iv. Reduction of competition.
i. ii. iii.
Clash of corporate cultures Increased business complexity Employees may be resistant to change
i. ii. iii.
iv. v.
Increased market share. Increased speed to market Lower risk comparing to develop new products. Increased diversification Avoid excessive competition
i. Inadequate valuation of target. ii. Inability to achieve synergy. iii. Finance by taking huge debt.
REASONS /ADVANTAGES
Size and Synergy Increased revenue/Increased Market Share Economies of Scale Helps to face competition Revival of sick units
Concentric Merger
Horizontal Merger
Horizontal mergers are those mergers where the companies manufacturing similar kinds of commodities or running similar type of businesses merge with each other.
BSES Ltd(Bombay suburban electric supply) with Orissa Power Supply Company. Associated Cement Companies Ltd Damodar Cement.
Vertical Merger
A merger between two companies producing different goods or services.
Pixar-Disney Merger
Conglomerate Merger
A merger between firms that are involved in totally unrelated business activities.
Two types of conglomerate mergers:
1. Pure conglomerate mergers involve firms with nothing in common.
2. Mixed conglomerate mergers involve firms that are looking for product extensions or market extensions.
Concentric Merger
A merger of firms which are into similar type of business.
STEEL co.
100 % stake in CORUS paying Rs 428/- per share
Image: B Mutharaman, Tata Steel MD; Ratan Tata, Tata chairman; J Leng, Corus chair; and P Varin, Corus CEO.
Image: Malvinder Singh (left), ex-CEO of Ranbaxy, and Takashi Shoda, president and CEO of Daiichi Sankyo.
Why India?
Dynamic government policies Corporate investments in industry Economic stability Ready to experiment attitude of Indian industrialists
i. Approval of Board of Directors ii. Information to the stock exchange iii. Application in the High Court iv. Shareholders and Creditors meetings v. Sanction by the High Court vi. Filing of the court order vii. Transfer of assets or liabilities viii. Payment by cash and securities
Maximum Waiting period:210 days from the filing of notice(or the order of the commission - whichever earlier).
Competition
Employees
Impact
Shareholders
No detailed investigating
Poor stake holder outreach
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