MERGERS

AND
ACQUISITION
S
2

MERGER
Is a strategy
through which two
firms agree to
integrate their
operations on a
relatively coequal
basis.
3

ACQUISITI
Is a strategy through

ON which one firm buys a

controlling, or 100
percent, interest in
another firm with the
intent of making the
acquired firm a
subsidiary business
within its portfolio.
4

TAKEOVER
SIs a special type of
acquisition wherein the
target firm does not
solicit the acquiring
firms bid; these are
unfriendly acquisitions.
5
1.
GAME TIME!
What are the names of
Cinderellas stepsisters?

Anastasia and Drizella

6
1.
GAME TIME!
This is an example of an
unfriendly acquisition.
Takeover or Hostile
Takeover
 FOR
7

INCREASED

ACQUISITI
MARKET POWER

OVERCOMING ENTRY
BARRIERS

COST OF NEW
PRODUCT
ONS RESHAPING THE
FIRMS
COMPETITIVE
INCREASED
DIVERSIFICATION
DEVT SCOPE

LOWER RISK COMPARED

TO DEVELOPING NEW LEARNING AND DEVELOPING NEW
PRODUCTS CAPABILITIES
8
INCREASED
MARKET
POWER
Achieving greater
market power is a
primary reason for
acquisitions.
9

MARKET
Exists when a firm is
able to sell its goods or

POWER
services above
competitive levels or
when the costs of its
primary or support
activities are lower
than those of its
competitors.
10

HORIZONTAL
ACQUISITIONS
Acquisition of a
company competing in
the same industry as
the acquiring firm.
11

VERTICAL
ACQUISITIONS
Refers to a firm
acquiring a supplier or
distributor of one or
more of its goods and
services.
12

RELATED
ACQUISITIONS
Acquiring a firm in a
highly related industry.

Horizontal, vertical, and
related acquisitions that firms
complete to increase their
market power are subject to
regulatory review as well as to
analysis by their financial
markets.
14
1.
GAME TIME!
Enumerate the
seven dwarfs.
Dopey, Bashful, Sneezy,
Sleepy, Happy, Grumpy,
Doc
15
1.
GAME TIME!
Enumerate the three types of
acquisitions and describe each.
Horizontal, Vertical, and
Related Acquisitions
16
OVERCOMING
ENTRY
BARRIERS
A key advantage of
using an acquisition
strategy to
overcome entry
barriers is that the
acquiring firm gains
immediate access to
a market.
17

BARRIERS TO
Factors associated with

ENTRY
a market or with the
firms currently
operating in it that
increase the expense
and difficulty new firms
encounter when trying
to enter that particular
market.
18

CROSS-BORDE
ACQUISITION
Acquisitions made
between companies
with headquarters in
different countries.
19
3.
GAME TIME!
Who are the three
fairies in Sleeping
Beauty?
Flora, Fauna, and
Merryweather
20
3.
GAME TIME!
Factors associated with a market or with
the firms currently operating in it that
increase the expense and difficulty new
firms encounter when trying to enter that
particular
Barriers tomarket.
Entry
21
COST OF
NEW
PRODUCT
DEVELOPM
Acquisitions are another
ENT AND
means a firm can use to
gain access to new INCREASED
SPEED TO
products and to current
products that are new to
the firm.
22
LOWER
RISK
COMPARED
TO
Acquisitions are less risky
DEVELOPIN
because the outcomes of
an acquisition can be G NEW
estimated more easily and
accurately than the
outcomes of an internal
PRODUCTS
product development
23
INCREASED
DIVERSIFICAT
ION
it is difficult for
companies to
develop products
that differ from their
current lines for
markets in which
they lack
experience, thus

The more related the acquired
firm is to the acquiring firm,
the greater is the probability
the acquisition will be
successful.
25
4.
GAME TIME!
In Beauty and the
Beast, what is the
name of the person
who turned into a
grandfather clock?
Cogsworth
26
4.
GAME TIME!
Acquisition should always be
___________, rather than defensive in
nature.

strategic
27

RESHAPING
THE FIRMS
COMPETITI
To reduce the negative
effect of an intense rivalry
VE SCOPE
on their financial
performance, firms may
use acquisitions to lessen
their dependence on one
or more products or
28
LEARNING
AND
DEVELOPIN
G NEW
Firms sometimes
CAPABILITI
complete acquisitions to
gain access to ES
capabilities they lack.
29
PROBLEMS
INTEGRATION
DIFFICULTIES
IN
INADEQUATE EVALUATION
OF TARGET
ACQUISITI
LARGE OR
EXTRAORDINAR
Y DEBT
ON
TOO LARGE
TOO MUCH
DIVERSIFICATION

OVERLY FOCUSED ON
INABILITY TO ACHIEVE DIVERSIFICATION
SYNERGY
30
REASONS FOR ACQUISITIONS VS. PROBLEMS
TO SUCCESS
Lower risk
Increased Integration compared to Inability to
market power difficulties developing achieve synergy
new products

Inadequate
Overcoming entry Increased Too much
evaluation of
barriers diversification diversification
target

Cost of new product Large or Managers

Reshaping the firm's
devt and increased extraordinary overly focused
competitive scope
speed to Market debt on acquisitions

Learning and
developing new Too large
capabilities
31
5.
GAME TIME!
What is the name of
the red dragon who
served as Mulans
guardian?
Mushu
32
5.
GAME TIME!
Give one reason for acquisition
with its corresponding probable
problem.
33

INTEGRATION
DIFFICULTIES
The post-acquisition
integration phase is probably
the single most important
determinant of shareholder
value creation (and equally of
value destruction) in mergers
and acquisitions
34

INADEQUATE
EVALUATION
OF TARGETS
The failure to complete an effective
due-diligence process may easily
result in the acquiring firm paying an
excessive premium for the target
company.
35
DUE
DILIGENC
Eis a process through
which a potential
acquirer evaluates a
target firm for
acquisition
36
6.
GAME TIME!
The song Colors of the
Wind is from what
Disney movie?

Pocahontas
37
6.
GAME TIME!
The _____________________ integration
phase is probably the single most
important determinant of shareholder
value creation (and equally of value
destruction) in mergers and acquisitions

Post-acquisition
38

LARGE OR
EXTRAORDIN
ARY DEBT
Firms sometimes still take on
what turns out to be too much
debt when acquiring
companies.
39

JUNK
BONDS
are a financing
option through
which risky
acquisitions are
financed with money
(debt) that provides
a large potential
return to lenders
(bondholders)
40

INABILITY TO
ACHIEVE
A firms ability to account for costs
SYNERGY
that are necessary to create
anticipated revenue- and cost-based
synergies affects its efforts to create
private synergy
41

SYNERGY
Exists when the
value created by
units working
together exceeds
the value those
units could create
working
independently
42

PRIVATE
SYNERGY
created when
combining and
integrating the
acquiring and acquired
firms assets yield
capabilities and core
competencies that
could not be developed
by combining and
integrating either
43
7.
GAME TIME!
In the movie Tangled, who is
the man who found Rapunzel
in the tower in the forest?
Flynn Rider
44
7.
GAME TIME!
are a financing option through which risky
acquisitions are financed with money
(debt) that provides a large potential
return to lenders (bondholders

Junk Bonds
45

TOO MUCH
DIVERSIFICATI
The level at which overdiversification

ON
occurs varies across companies
because each firm has different
capabilities to manage
diversification.
46

MANAGEMEN
T OVERLY
FOCUSED ON
ACQUISITION
Managerial attention is
diverted from other matters

Sthat are necessary for long-

term competitive success
47

TOO LARGE
At some level, the additional costs
required to manage the larger firm
will exceed the benefits of the
economies of scale and additional
market power.
48
8.
GAME TIME!
This real life Disney prince
is Prince who from what
movie?
Prince Eric from The
Little Mermaid
49
8.
GAME TIME!
is a serious and common mistake made
by investors. This occurs when investors
mistakenly believe that the more
diversification the better.
Overdiversification
50

EFFECTIVE
ACQUISITIONS
Bring the attention of your audience
over a key concept using icons or
illustrations
51
52

RESTRUCTURING
is a strategy through which a firm
changes its set of businesses or its
financial structure
53

DOWNSI
ZING
a reduction in the
number of a firms
employees and,
sometimes, in the
number of its
operating units, but
it may or may not
change the
composition of
54

DOWNSCO
PING
refers to divestiture,
spin-off, or some
other means of
eliminating
businesses
that are unrelated to
a firms core
businesses
55
9.
GAME TIME!
Give any one of the three
wishes of Aladdin to Genie.
1."Genie, I wish for you to make me a
prince"
2. "Genie, I want you to save my life"
3. "I wish for your freedom"
56
8.
GAME TIME!
is a serious and common mistake made
by investors. This occurs when investors
mistakenly believe that the more
diversification the better.
Overdiversification
57
LEVERAGE
D
BUYOUTS
is a restructuring
strategy whereby a
party (typically a
private equity firm)
buys all of a firms
assets in order to
take the firm private
58
THREE TYPES OF LEVERAGE BUYOUTS

EMPLOYE WHOLE
MANAGEMENT E FIRM
BUYOUTS BUYOUTS BUYOUTS
59 ALTERNATIVES SHORT-TERM OUTCOMES LONG-TERM OUTCOMES
60
8.
GAME TIME!
This real life Disney prince
is Prince who from what
movie?
The Beast from
Beauty and the
Beast
61
10.
GAME TIME!
Give one short term outcome and
long term outcome from any of the
three restructuring alternatives.
62

THE END.