Mergers and Aqusitions
What are the main benefits assumed to flow from a merger or takeover? Why do so many mergers and takeover fails to deliver improved financial performance? Illustrate your answer with relevant financial case study?
A takeover is when one company takes over another and clearly establishes itself as the new owner. This purchase is known as an acquisition, the target company ceases to exist and the buyers stock continues to be traded from a legal point of view. Now a merger is when two companies (they are often about the same size and have factors in common in terms of product) agree to go on forward as a new company rather than remaining separately owned and operated. Both the company stocks are surrendered and a new company stock is issued in its place. For example Daimler-Benz and Chrysler no longer exist when they merged but now a new company “DaimlerChrysler” was created ,(McClure in investopidia) A purchased deal can also be called a merger when both CEO's agree that joining together will be the interest of both company ,as Vos & Kellerher.,2000 stated that theoretically a company will enter an acquisition or merger if they believed that the Net Present Value combined is greater than when separated, and also the economic value combined is greater than when the firm is separated, but if the deal is unfriendly that is if the target company does not want to be purchased it is referred to as an acquisition. Firms are acquired for a number of reasons. In the 1960s and 1970s, firms such as Gulf and Western and ITT built themselves into conglomerates by acquiring firms in other lines of business. The main reasons why merger and takeover occur are to create shareholder value over and above that of the sum of the two companies. The reasoning behind this idea is that two companies together are more valuable than two separate companies. This idea is especially appealing to companies when times are tough. Strong companies will buy other companies to create a more
A takeover is when one company takes over another and clearly establishes itself as the new owner. This purchase is known as an acquisition, the target company ceases to exist and the buyers stock continues to be traded from a legal point of view. Now a merger is when two companies (they are often about the same size and have factors in common in terms of product) agree to go on forward as a new company rather than remaining separately owned and operated. Both the company stocks are surrendered and a new company stock is issued in its place. For example Daimler-Benz and Chrysler no longer exist when they merged but now a new company “DaimlerChrysler” was created ,(McClure in investopidia) A purchased deal can also be called a merger when both CEO's agree that joining together will be the interest of both company ,as Vos & Kellerher.,2000 stated that theoretically a company will enter an acquisition or merger if they believed that the Net Present Value combined is greater than when separated, and also the economic value combined is greater than when the firm is separated, but if the deal is unfriendly that is if the target company does not want to be purchased it is referred to as an acquisition. Firms are acquired for a number of reasons. In the 1960s and 1970s, firms such as Gulf and Western and ITT built themselves into conglomerates by acquiring firms in other lines of business. The main reasons why merger and takeover occur are to create shareholder value over and above that of the sum of the two companies. The reasoning behind this idea is that two companies together are more valuable than two separate companies. This idea is especially appealing to companies when times are tough. Strong companies will buy other companies to create a more