Merger and Acquisition

Topics: Mergers and acquisitions, Stock market, Investment Pages: 5 (2990 words) Published: March 18, 2013
With the accelerated internationalization, a great number of strategies and tactics are adopted by either multinational companies or regional firms in order to obtain global market shares as much as possible. Mergers and Acquisitions (M&A) are one of methods for a corporation to grow and expand its global business. Globally, the value of M&A increased by 19%, up to USD 2.25 trillion in 2010, with amount of USD378 billion contributed by the emerging markets contributed. ( Some factors, however, such as credit availability, level of volatility and uncertain macro-economy, affect M&A activity levels which have been closely joined with the state of the equity markets. This essay is to make an introduction of M&A terminology and its types; the reasons and motives for and barriers and limitations against M&A; how to finance M&A; the variety of strategies and tactics adopted by the acquirer and target; a range of corporation valuation techniques related to company consolidation; how M&A activities impact on stakeholders involved; understanding the morale behind a corporation’s choice to divest part of its business and the various routes to divestment. After that, two cases of M&A activities are to be discussed, which explain how the above theoretical knowledge have been achieved in practice. a) Terminology and types of Mergers and Acquisitions (M&A) In order to achieve certain objectives strategically and financially, two companies, with often essentially differences in corporate personality, cultures and systems of value, are brought together in M&A activity.(Pxiii) Mergers and acquisitions are one of methods for a corporation not only to expand and grow its business, but also are another way to development through capital investment internally or organically. The M&A parlance include the terms of merger, acquisition and takeover. Merger means that in order to reach common objectives, the companies come together to share and enjoy their resources. The shareholders from the involved companies are often still the joint owners of the newly combined corporation, whereas in an acquisition, one company purchases the assets or shares of another whose shareholders stop to be owners of their company. The acquired company becomes the auxiliary one of the acquirer. A ‘takeover’ has some similarities with an acquisition, with an implication of the acquirer much bigger than the acquired, while a ‘reverse takeover’ is regarded as an acquisition where the latter is larger than the former. (338.83SUD,P1) b) The justifications and motives for and barriers and limitations against Mergers and Acquisitions The justifications and motives for Mergers and Acquisitions can be regarded as the strategic objectives of the acquirer, which include pursuing scale economy, expanding market power, controlling supplying chains, consolidating excessive production capacity (338.83SUD,P4,P13), and reducing earnings volatility and reasonable reduction of tax motivated by cross-border M&A. (338.83SUD,P269) However, a key and more fundamental motivation for M&A is to enhance the wealth of shareholders. Two companies coming together become more valuable than two individual firms. After M&A, one magic force called synergy facilitates to improve cost efficiencies of a newly joint entity. ( In addition, managerial motivation is another driver for M&A. Managerial interests are correlated to the development of company, although their objectives sometimes are self-interest pursuit such as only focusing on an increasing of firm size, income and status. (338.83SUD,P13,P16) All above reasons and motivations contribute to the mergers and acquisitions. On the other hand, there are still various barriers and limitations against...
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