Merger & Acquisition Strategy

Topics: Due diligence, Mergers and acquisitions Pages: 161 (18376 words) Published: March 25, 2014


Objective

To explore the strategy of Merger & Acquisition for Development and Expansion of Business.

Introduction

Introduction
The terms merger and amalgamation are synonyms and the term ‘amalgamation’, as per Concise Oxford Dictionary, Tenth Edition, means, ‘to combine or unite to form one organization or structure’. Merger or an Acquisition in a company sense can be defined as the combination of two or more companies into one new company or corporation. The main difference between a merger and an acquisition lies in the way in which the combination of the two companies is brought about. Merger is a process in which negotiation is involved between the two companies prior to the combination taking place. For example, assume that Companies A and B are two Banking institutions. Company A is an commercial bank with business concentration into financing industrial and corporate sector. Company B is a banking institution with a big customer base and business portfolio of Housing Loan. Both companies may consider that a merger would produce benefits as it would make the commercial and domestic customer bases available to the combined company. The two companies may decide to initiate merger negotiations. If they conclude favorably, the outcome would be a merger of the two companies to form a new larger whole. In an acquisition the negotiation process does not necessarily take place. In an acquisition company A buys company B. Company B becomes wholly owned by company A. Company B will cease to exist as a separate entity, or company A might retain company B in its pre-acquired form. In acquisitions the dominant company is usually referred to as the acquirer and the lesser company is known as the acquired. The acquirer buys shares of the acquiring company’s shareholders up to a point where it becomes the owner. Achieving ownership may require purchase of all of the target shares or a majority of them.

Organic Growth – Inorganic Growth
The strategy adopted by companies for growth include
a. Self Initiative
b. Acquisition
c. Merging with other companies
d. Strategic Alliance with other entities
A corporate which build up on its own is termed as organic growth. Growing or Expanding by way of acquiring or partnering with the existing units is tered as Inorganic Growth Inorganic growth is the appetite of the current management style. TISCO’s growth in the first eight decades is organic growth, however its growth due to acquisition of NatSteel of Singapore is a case of inorganic growth.

Transaction between two Companies
In a merger of companies that are equal the transaction may be settled by way of cash upfront, this is termed as all cash Deal. Alternatively the target company may be partly in cas and partly in shares.of the merged acquiring company. The deal may entirely Non cash in which the acquirer issues shares incertain ration to the share holders of the acquired merging firm. At times the assets of the acquiring company is used to finance the acquisition, this is termed as Leveraged buyout. This is done by way of using debt funds like bank Loan, Bonds etc. A recent example of leveraged buyout is the acquisition of Tetley Tea by Tata Tea in the year 2000.

Value Creation Process.
The aim of merger or acquisition is to create value that will get generated when the two organization are combined. This can happen by a. Combining the companies and sharing their resources.
b. Sharing information, Knowlegde an d Know how
c. Improved coordination and control.
d. Leveraging Cash resources, borrowing capacity, enhanced purchasing power,

Types of Merger
Corporate merger and acquisition is a process of buying, selling, and integrating different corporations with the objective of expansion and accelerated growth opportunities. Such type of association plays an integral role when it comes to business and economy as it results in significant restructuring of a business. The basic...
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