2008 Spec. Issue 2 Sept. 2009
Mergers and Takeovers
Specification requirement— Reasons for mergers/takeovers. Types of merger with reference to UK industries/markets. Hostile and friendly takeovers. Private equity buy-outs. Management buy-outs (MBOs), Management buy-ins (MBIs) and demergers. difficult rules of timescale to meet than under conditions of a takeover.
Reasons For Mergers And Takeovers.
A Takeover is the acquisition of one business or company by another, either on an agreed or hostile basis. The susceptibility of a company to takeover depends on who controls the majority of shares in issue and which shares have the voting rights, the value of the shares, and the performance of the firm. Often takeovers in certain industries come into fashion, and then there is a huge upsurge in take-over activity in that particular industry.
Mergers and takeovers have been a part of the business world for centuries, They allow businesses to grow rapidly and can remove competition from the market. In most cases, by using mergers and acquisitions, a company can develop a competitive advantage and ultimately increase shareholder value. Other reasons for mergers and takeovers include; • •
A Merger is the process by which two companies become one. If the companies are listed, the merger may be by agreement, or hostile. A hostile bid is one in which the directors of the target company reject the approach, but it is still possible for the predator company to obtain control if enough of the target's shareholders accept its offer. This sounds more like a takeover—and it is in all but in name. Mostly mergers are agreed, and once accepted by owners there are less
Access to new markets—especially overseas. Acquiring new products and technology— a takeover is one way of acquiring technology that may be protected by patent, or may be expensive r time consuming to develop internally. Economies of scale are derived from becoming larger. Synergy -the idea that 2+2=5. The synergy argument is, that by combining two firms, total profits can be increased by reducing duplicated services such as head office costs, or the two firms fit together in a way that allows costs to be reduced and profits increased e.g. Grand Met and Guinness. Cost Savings -Takeovers are often followed by significant numbers of redundancies in the short term. In order to convince shareholders that a takeover is in their interests, managers in the bidding firm often promise that cost savings will result from the
Title Mergers and Takeovers merger, and shedding staff is a principal way in which this is achieved. Currently, this pattern of cost savings through redundancies is most evident in the financial sector where a wave of forded mergers and takeovers are associated with large-scale job losses. Underperforming management teams can be removed giving an immediate boost to performance. Increased investment is available Higher returns to shareholders Improved prospects for employees' pay and security.
Page 2 in a change of executives. Thus management behaviour can be determined by attempts to prevent the firm being taken over. This can be achieved through concentrating on maximising short-term profitability in order to keep up the share price - making a hostile bid more expensive - and through distributing a high proportion of profits in the form of dividends to shareholders in order to generate loyalty to the existing managerial team. Therefore a major effect of the threat of take-over is the focus of management towards short-term goals, at the expense of investments in research and development, new technology and training.
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These arguments for takeovers have in the past been generally accepted, but this view is now being questioned. Recent research shows that the profitability of firms that are taken over is no better than other quoted companies....