FinanceCH.20: Homework:

Corporate restructuration (P. 625)

1- Name three industries in which mergers have been prominent. (P.612)

Mergers have had a presence in a number of industries. Particularly evident were the telecommunications and public utility industries where mergers were announced between AT&T and SPC Communications; Sprint and Nextel; and Verizon communications and MCI, Inc.Another area of increased merger activity was the pharmaceutical industry. Drug Company giant Pfizer acquired Warner-Lambert, as well as Pharmacia. Another important merger in the industry was between SmithKline Beecham and Glaxo Well-com. Johnson & Johnson also made a number of key acquisitions.

2- What is the difference between a merger and a consolidation? (P.613 – Slide 6)

A combination of two or more companies in which the resulting firm maintains the identity of acquiring company.Mergers

Two or more companies are combined to form a new entity. A consolidation might be utilized when the firms are of equal size and market power.Consolidation

4- What is the difference between horizontal integration and vertical integration? How does antitrust policy affect the nature of mergers? (P.615 – Slide 12)

The acquisition of competitors.Horizontal integration

The acquisition of buyers (Customers) or sellers of goods and services (suppliers) by the company

Vertical integration

Antitrust policy generally precludes the elimination of competition. For this reason, mergers are often with companies in allied but not directly related field.

5- What is synergy? What might cause this result? Is there a tendency for management to over-or underestimate the potential synergistic benefits of a merger? (P.615 – Slide 13)

Synergy is defined as the recognition that the whole may be equal to more than the sum of the parts. The (2+2=5) effect.

It is result of eliminating overlapping functions in production and marketing as well fitting together various engineering capabilities.

In terms of planning related to mergers, there is often a tendency to overestimate the possible synergistic benefits that might occur.