Merger and Acquisition by Hisham Taufeq

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CHAPTER ONE
INTRODUCTION

1.1 Introduction
Merger and acquisition are not new issues. Many international and local studies regarding how mergers and acquisitions could affect firm’s performance had been done. Many studies found out that mergers and acquisitions did not have any significant impact towards firms’ performance. All the findings from these studies are very useful for investors as well as firms’ managements to make decision in future.

A merger can refer to any takeover of one company by another, when the business of each company is brought together as one. The common types of merger are horizontal merger and vertical merger. Horizontal merger happen when two firms selling the same goods or the same type of goods merge, and vertical merger is the merging of firm with its suppliers. For instance, a car manufacturer merges with tire manufacturer. Basically, there are many reasons why firms tend to merge such as to achieve economies of scale, to diversify into new product lines and to expand into new regional markets.

However, an acquisition is the takeover of the ownership and management control of one company by another. Acquisitions of companies can be either full or partial. In a full acquisition, the acquirer buys all the stock capital of the purchased company. In contrast with partial acquisition, which the acquirer obtains a controlling interest, normally more than 50 percent of the equity stocks, but less than 100 percent. The reasons to acquire other companies include a growth strategy, defensive reason and financial opportunities.

This study is carried out in order to identify whether pre and post mergers and acquisitions affect firms’ performance or not. If they do affect firms’ performance, is it significant or vice versa?

1.2 Problem Statement
Many studies had been done previously regarding the effects of mergers and acquisitions towards firms’ performance, either international or local studies. Most of the studies found out that mergers and acquisitions did not bring any significant impact towards firms’ performance.

Thus, I want to further explore regarding this matter, especially with the mergers and acquisitions that involved listed companies in Bursa Malaysia. Basically, there are a few things that I want to find out by exploring this study. First of all, I want to know whether the wave of mergers and acquisitions in the previous era helped Malaysian firms in improving their financial performance.

Besides that, I would like to find out whether operating performance of merging firms really improve following acquisitions or vice versa, plus the impact of acquirer and acquiree’s market shares towards firms’ innovative performance.

1.3 Research Objectives

Basically this study has three main objectives, which are:

1) To identify the merger and acquisition factors that influenced firms’ performance. 2) To evaluate the relationship between mergers and acquisitions with firms’ profitability levels. 3) To examine the impact of firms’ performance derived from mergers and acquisitions.

1.4 Significance of the Study
This study is important and it is significant for knowledge and understands how the merger and acquisition factors influence firms’ performance. Many parties will be able to gain knowledge from it, especially students. Besides that, this study is said to be significant because it can educate people about the effects of mergers and acquisitions towards firms’ performance, specifically to the authorities and investors. Authorities here are Bursa Malaysia, Security Commission and etc. In addition, this study can be used as a reference for future students to enhance research on the factors of merger and acquisition that influence firms’ performance.

1.5Scope of the Study
This study is focusing on the previous mergers and acquisition cases that involved public companies that were listed in Bursa...
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