Mergers and Acquisitions

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UNIVERSITY OF NAIROBI
SCHOOL OF BUSINESS
MASTERS OF BUSINESS ADMINISTRATION
COURSE: FINANCIAL SEMINAR
COURSE CODE: DFI 605
SEMESTER: JANUARY-APRIL 2012
CLASS PRESENTATION: GROUP NINE PRESENTATION
TOPIC: MERGERS AND ACQUISITIONS, MODERN THEORY OF CORPORATE CONTROL COURSE INSTRUCTOR: MIRIE MWANGI
GROUP MEMBERS:
STUDENT| REGISTRATION NUMBER|
BANCY WANGUI| D61/60453/2011|
ISAAC NYAMORA| D61/66960/2011|
JACQUELYNE M. ODERO| D61/62818/2010|
JOSEPHINE M. ODERA| D61/63410/2010|
MATTHEWS WAUYE| D61/63904/2010|
SAMUEL GATHUA| D61/64121/2011|
TIM SILOMA| D61/60464/2011|

ABSTRACT
In today’s globalised economy, mergers and acquisitions (M&A) are being increasingly used the world over, for improving competitiveness of companies through gaining greater market share, broadening the portfolio to reduce business risk, for entering new markets and geographies, and capitalizing on economies of scale. This document is structured in three parts. The introductory section provides an overview of the definition of mergers and acquisition, motives and the types of mergers and acquisitions. Part one of the document provides the historical evolution of the mergers and acquisition activity in the United States, explaining the environment in which they took place. I then explain the theoretical motivations for mergers and acquisitions, focusing in rational and irrational behaviors. Part two discusses the various empirical studies undertaken in the field. Finally, a discussion of unresolved issues around the topic.

ABBREVIATIONS

ANOVA Analysis of Variance
KPMG Kenya Peat Marwick Group M & A s Mergers and acquisitions

TABLE OF CONTENT

ABSTRACT1
ABBREVIATIONS2
CHAPTER ONE5
1.0 INTRODUCTION5
1.1 Definition of Mergers and Acquisitions6
1.2 Motives for Mergers and Acquisition7
1.2.1 Synergy8
1.2.2 Accelerated Growth.9
1.2.3 Enhanced Profitability:9
1.2.4 Diversification of Risk:.10
1.2.5 Reduction in Tax Liability.10
1.2.6 Increased Market Power:11
1.2.7 Obtaining a Good Buy:11
1.3 Types of Mergers and Acquisitions11
1.3.1 Horizontal Merger and Acquisitions12
1.3.2 Vertical Merger and Acquisitions12
1.3.3Conglomerate Merger and Acquisitions13
1.3.4 Financial Acquisitions13
CHAPTER TWO14
2.0 HISTORICAL DEVELOPMENT OF MERGERS AND ACQUISITIONS14
2.1.1 First Wave Period (1893-1904)14
2.1.2 Second Wave Period (1919-1929)14
2.1.3 Third Wave Period (1955-1969-73)15
2.1.4 Fourth Wave Period (1974-80-1989)15
2.1.5 Fifth Wave Period (1993-2000)16
2.1.6. Sixth Period16
2.2 THEORIES OF MERGERS AND ACQUISITIONS17
2.2.1 Monopoly Theory18
2.2.2 Valuation Theory18
2.2.3 Empire-building Theory19
2.2.4 Process Theory19
2.2.5 Raider theory20
2.2.6 Disturbance theory20
2.3EMPIRICAL EVIDENCE FOR MERGERS AND ACQUISITIONS21
2.3.1Synergy21
2.3.2 Empire Building24
2.3.3 Valuation26
2.3.4 Multidimensional studies28
2.3.5 Corporate Control30
2.4 OTHER APPROACHES TO THE STUDY OF MERGERS & ACQUISITIONS31
2.4.1 Event Studies Approach31
2.4.2 Accounting Data32
2.4.3 Stock Market Studies33
2.4.4Stock Price Effects34
CHAPTER THREE38
3.0 UNRESOLVED ISSUES38
3.1 CONCLUSION39
REFERENCES:42

CHAPTER ONE
1.0INTRODUCTION
In today’s market, the main objective of a firm is to make profits and create shareholder wealth. Growth can be achieved by introducing new products and services or by expanding with its present operations on its existing products. Internal growth can be achieved by introducing new products however; external growth can be achieved through mergers and acquisitions...
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