mergers and acquisitions.doc

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The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate

strategy, corporate finance and management dealing with the buying, selling and

combining of different companiesthat can aid, finance, or help a growing company in agiven industry grow rapidly without having to create another business entity.

Contents

1 Overview

2 Acquisition

o 2.1 Types of acquisition

3 Merger

o 3.1 Classifications of mergers

4 Distinction between Mergers and Acquisitions

5 Business valuation

6 Financing M&A

o 6.1 Cash

o

6.2 Financingo 6.3 Hybrids

o 6.4 Factoring

7 Motives behind M&A

8 M&A marketplace difficulties

9 The Great Merger Movement

o 9.1 Short-run factors

o 9.2 Long-run factors

10 Cross-border M&A

11 Major M&A in the 1990s

12 Major M&A from 2000 to present

13 See also
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14 References

[edit]Overview

A merger is a tool used by companies for the purpose of expanding their operations often

aiming at an increase of their long term profitability. There are 15 different types of

actions that a company can take when deciding to move forward using M&A. Usually

mergers occur in a consensual (occurring by mutual consent) setting where executives

from the target company help those from the purchaser in a due diligence process to

ensure that the deal is beneficial to both parties. Acquisitions can also happen through a

hostile takeover by purchasing the majority of outstanding shares of a company in the

open market against the wishes of the target's board. In the United States, business laws

vary from state to state whereby some companies have limited protection against hostile

takeovers. One form of protection against a hostile takeover is the shareholder rights

plan, otherwise known as the "poison pill".

Historically, mergers have often failed (Straub, 2007) to add significantly to the value of

the acquiring firm's shares (King, et al., 2004). Corporate mergers may be aimed at

reducing market competition, cutting costs (for example, laying off employees, operating

at a more technologically efficient scale, etc.), reducing taxes, removing management,

"empire building" by the acquiring managers, or other purposes which may or may not be

consistent with public policy or public welfare. Thus they can be heavily regulated, for

example, in the U.S. requiring approval by both the Federal Trade Commission and the

Department of Justice.

The U.S. began their regulation on mergers in 1890 with the implementation of the

Sherman Act. It was meant to prevent any attempt to monopolize or to conspire to restrict

trade. However, based on the loose interpretation of the standard "Rule of Reason", it wasup to the judges in the U.S. Supreme Court whether to rule leniently (as with U.S. Steel

in 1920) or strictly (as with Alcoa in 1945).

[edit]Acquisition
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Main article: Takeover

An acquisition, also known as a takeover, is the buying of one company (the target) by

another. An acquisition may be friendly or hostile. In the former case, the companies

cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought

or the target'sboard has no prior knowledge of the offer. Acquisition usually refers to a

purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will

acquire management control of a larger or longer established company and keep its name

for the combined entity. This is known as areverse takeover.

[edit]Types of acquisition

The buyer buys the shares, and therefore control, of the target company being

purchased. Ownership control of the company in turn conveys effective control

over the assets of the company, but since the company is acquired intact as a

going business, this form of transaction carries with it all of the liabilities accrued

by that business over its past and all of the risks that company faces in its

commercial environment.

The buyer buys the assets of the target company. The cash the target receives

from the sell-off is paid back to its shareholders by dividend or throughliquidation. This type of transaction leaves the target company as an empty shell,

if the buyer buys out the entire assets. A buyer often structures the transaction as

an asset purchase to "cherry-pick" the assets that it wants and leave out the assets

and liabilities that it does not. This can be particularly important where

foreseeable liabilities may include future, unquantified damage awards such as

those that could arise from litigation over defective products, employee benefits

or terminations, or environmental damage. A disadvantage of this structure is the

tax that many jurisdictions, particularly outside the United States, impose on

transfers of the individual assets, whereas stock transactions can frequently be

structured as like-kind exchanges or other arrangements that are tax-free or tax-

neutral, both to the buyer and to the seller's shareholders.
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The terms "demerger", "spin-off" and "spin-out" are sometimes used to indicate a

situation where one company splits into two, generating a second company separately

listed on a stock exchange.

[edit]Merger

In business or economics a merger is a combination of two companies into one larger

company. Such actions are commonly voluntary and involve stock swap or cash payment

to the target. Stock swap is often used as it allows the shareholders of the two companies

to share the risk involved in the deal. A merger can resemble a takeoverbut result in a

new company name (often combining the names of the original companies) and in new

branding; in some cases, terming the combination a "merger" rather than an acquisition is

done purely for political or marketing reasons.

[edit]Classifications of mergers

Horizontal mergers take place where the two merging companies produce similar

product in the same industry.

Vertical mergers occur when two firms, each working at different stages in the

production of the same good, combine.

Congeneric mergers occur where two merging firms are in the same general

industry, but they have no mutual buyer/customer or supplier relationship, such as

a merger between a bank and a leasing company. Example: Prudential's

acquisition of Bache & Company.

Conglomerate mergers take place when the two firms operate in different

industries.

A unique type of merger called a reverse mergeris used as a way of going public withoutthe expense and time required by an IPO.

The contract vehicle for achieving a merger is a "merger sub".
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The occurrence of a merger often raises concerns in antitrust circles. Devices such as the

Herfindahl index can analyze the impact of a merger on a market and what, if any, action

could prevent it. Regulatory bodies such as the European Commission, the United States

Department of Justice and the U.S. Federal Trade Commission may investigate anti-trust

cases formonopoliesdangers, and have the power to block mergers.

Accretive mergers are those in which an acquiring company's earnings per share (EPS)

increase. An alternative way of calculating this is if a company with a high price to

earnings ratio (P/E) acquires one with a low P/E.

Dilutive mergers are the opposite of above, whereby a company's EPS decreases. The

company will be one with a low P/E acquiring one with a high P/E.

The completion of a merger does not ensure the success of the resulting organization;

indeed, many mergers (in some industries, the majority) result in a net loss of value due

to problems. Correcting problems caused by incompatibilitywhether of technology,

equipment, orcorporate culture diverts resources away from new investment, and these

problems may be exacerbated by inadequate research or by concealment of losses or

liabilities by one of the partners. Overlapping subsidiaries or redundant staff may be

allowed to continue, creating inefficiency, and conversely the new management may cuttoo many operations or personnel, losing expertise and disrupting employee culture.

These problems are similar to those encountered in takeovers. For the merger not to be

considered a failure, it must increase shareholder value faster than if the companies were

separate, or prevent the deterioration of shareholder value more than if the companies

were separate.

[edit]Distinction between Mergers and Acquisitions

Although they are often uttered in the same breath and used as though they were

synonymous, the terms merger and acquisition mean slightly different things.

When one company takes over another and clearly established itself as the new owner,

the purchase is called an acquisition. From a legal point of view, the target company
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ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be

traded.

In the pure sense of the term, a merger happens when two firms, often of about the same

size, agree to go forward as a single new company rather than remain separately owned

and operated. This kind of action is more precisely referred to as a "merger of equals."

Both companies' stocks are surrendered and new company stock is issued in its place. For

example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged,

and a new company, DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often. Usually, one

company will buy another and, as part of the deal's terms, simply allow the acquired firm

to proclaim that the action is a merger of equals, even if it's technically an acquisition.

Being bought out often carries negative connotations, therefore, by describing the deal as

a merger, deal makers and top managers try to make the takeover more palatable.

A purchase deal will also be called a merger when both CEOs agree that joining together

is in the best interest of both of their companies. But when the deal is unfriendly - that is,

when the target company does not want to be purchased - it is always regarded as an

acquisition.

Whether a purchase is considered a merger or an acquisition really depends on whether

the purchase is friendly or hostile and how it is announced. In other words, the real

difference lies in how the purchase is communicated to and received by the target

company's board of directors, employees and shareholders. It is quite normal though for

M&A deal communications to take place in a so called 'confidentiality bubble' whereby

information flows are restricted due to confidentiality agreements (Harwood, 2006).

[edit]Business valuation

The five most common ways to valuate a business are

asset valuation,
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historical earnings valuation,

future maintainable earnings valuation,

relative valuation (comparable company & comparable transactions),

discounted cash flow (DCF) valuation

Professionals who valuate businesses generally do not use just one of these methods but a

combination of some of them, as well as possibly others that are not mentioned above, in

order to obtain a more accurate value. These values are determined for the most part by

looking at a company's balance sheet and/or income statement and withdrawing the

appropriate information. The information in the balance sheet or income statement is

obtained by one of three accounting measures: aNotice to Reader, a Review Engagement

or an Audit.

Accurate business valuation is one of the most important aspects of M&A as valuations

like these will have a major impact on the price that a business will be sold for. Most

often this information is expressed in a Letter of Opinion of Value (LOV) when the

business is being valuated for interest's sake. There are other, more detailed ways of

expressing the value of a business. These reports generally get more detailed and

expensive as the size of a company increases, however, this is not always the case as

there are many complicated industries which require more attention to detail, regardless

of size.

[edit]Financing M&A

Mergers are generally differentiated from acquisitions partly by the way in which they

are financed and partly by the relative size of the companies. Various methods of

financing an M&A deal exist:

[edit]Cash

Payment by cash. Such transactions are usually termed acquisitions rather than mergers

because the shareholders of the target company are removed from the picture and the

target comes under the (indirect) control of the bidder's shareholders alone.
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A cash deal would make more sense during a downward trend in the interest rates.

Another advantage of using cash for an acquisition is that there tends to lesser chances of

EPS dilution for the acquiring company. But a caveat in using cash is that it places

constraints on the cash flow of the company.

[edit]Financing

Financing capital may be borrowed from a bank, or raised by an issue of bonds.

Alternatively, the acquirer's stock may be offered as consideration. Acquisitions financed

through debt are known as leveraged buyouts if they take the target private, and the debt

will often be moved down onto thebalance sheetof the acquired company.

[edit]Hybrids

An acquisition can involve a combination of cash and debt, or a combination of cash and

stock of the purchasing entity.

[edit]Factoring

Factoring can provide the necessary extra to make a merger or sale work.

[edit]Motives behind M&A

These motives are considered to add shareholder value:

Synergy: This refers to the fact that the combined company can often reduce

duplicate departments or operations, lowering the costs of the company relative to

the same revenue stream, thus increasing profit.

Increased revenue/Increased Market Share: This motive assumes that the

company will be absorbing a major competitor and thus increase its power (by

capturing increased market share) to set prices.

Cross selling: For example, a bank buying a stock broker could then sell its

banking products to the stock broker's customers, while the broker can sign up the
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bank's customers for brokerage accounts. Or, a manufacturer can acquire and sell

complementary products.

Economies of Scale: For example, managerial economies such as the increased

opportunity of managerial specialization. Another example are purchasing

economies due to increased order size and associated bulk-buying discounts.

Taxes: A profitable company can buy a loss maker to use the target's loss as their

advantage by reducing their tax liability. In the United States and many other

countries, rules are in place to limit the ability of profitable companies to "shop"

for loss making companies, limiting the tax motive of an acquiring company.

Geographical or other diversification: This is designed to smooth the earnings

results of a company, which over the long term smoothens the stock price of a

company, giving conservative investors more confidence in investing in the

company. However, this does not always deliver value to shareholders (see

below).

Resource transfer: resources are unevenly distributed across firms (Barney, 1991)

and the interaction of target and acquiring firm resources can create value through

either overcoming information asymmetry or by combining scarce resources.

These motives are considered to not add shareholder value:

Diversification: While this may hedge a company against a downturn in an

individual industry it fails to deliver value, since it is possible for individual

shareholders to achieve the same hedge by diversifying their portfolios at a much

lower cost than those associated with a merger.

Manager'shubris: manager's overconfidence about expected synergies from M&A

which results in overpayment for the target company.

Empire building: Managers have larger companies to manage and hence morepower.

Manager's compensation: In the past, certain executive management teams had

their payout based on the total amount of profit of the company, instead of the

profit per share, which would give the team aperverse incentiveto buy companies

to increase the total profit while decreasing the profit per share (which hurts the
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owners of the company, the shareholders); although some empirical studies show

that compensation is linked to profitability rather than mere profits of the

company.

Vertical integration: Companies acquire part of a supply chainand benefit from

the resources. However, this does not add any value since although one end of the

supply chain may receive a product at a cheaper cost, the other end now has lower

revenue. In addition, the supplier may find more difficulty in supplying to

competitors of its acquirer because the competition would not want to support the

new conglomerate.

[edit]M&A marketplace difficulties

This section does not cite any references or sources. (December 2007)

Please improve this sectionby adding citations to reliable sources.Unverifiable material

may be challenged and removed.

No marketplace currently exists for the mergers and acquisitions of privately owned

small to mid-sized companies. Market participants often wish to maintain a level of

secrecy about their efforts to buy or sell such companies. Their concern for secrecy

usually arises from the possible negative reactions a company's employees, bankers,

suppliers, customers and others might have if the effort or interest to seek a transaction

were to become known. This need for secrecy has thus far thwarted the emergence of a

public forum or marketplace to serve as a clearinghouse for this large volume of business.

At present, the process by which a company is bought or sold can prove difficult, slow

and expensive. A transaction typically requires six to nine months and involves many

steps. Locating parties with whom to conduct a transaction forms one step in the overall

process and perhaps the most difficult one. Qualified and interested buyers ofmultimillion dollar corporations are hard to find. Even more difficulties attend bringing a

number of potential buyers forward simultaneously during negotiations. Potential

acquirers in an industry simply cannot effectively "monitor" the economy at large for

acquisition opportunities even though some may fit well within their company's

operations or plans.
http://en.wikipedia.org/wiki/Vertical_integrationhttp://en.wikipedia.org/wiki/Supply_chainhttp://en.wikipedia.org/wiki/Supply_chainhttp://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=14http://en.wikipedia.org/wiki/Wikipedia:Citing_sourceshttp://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edithttp://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edithttp://en.wikipedia.org/wiki/Wikipedia:Reliable_sourceshttp://en.wikipedia.org/wiki/Wikipedia:Reliable_sourceshttp://en.wikipedia.org/wiki/Wikipedia:Verificationhttp://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Vertical_integrationhttp://en.wikipedia.org/wiki/Supply_chainhttp://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=14http://en.wikipedia.org/wiki/Wikipedia:Citing_sourceshttp://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edithttp://en.wikipedia.org/wiki/Wikipedia:Reliable_sourceshttp://en.wikipedia.org/wiki/Wikipedia:Verificationhttp://en.wikipedia.org/wiki/Market


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An industry of professional "middlemen" (known variously as intermediaries, business

brokers, and investment bankers) exists to facilitate M&A transactions. These

professionals do not provide their services cheaply and generally resort to previously-

established personal contacts, direct-calling campaigns, and placing advertisements in

various media. In servicing their clients they attempt to create a one-time market for a

one-time transaction. Certain types of merger and acquisitions transactions involve

securities and may require that these "middlemen" be securities licensed in order to be

compensated. Many, but not all, transactions use intermediaries on one or both sides.

Despite best intentions, intermediaries can operate inefficiently because of the slow and

limiting nature of having to rely heavily on telephone communications. Many phone calls

fail to contact with the intended party. Busy executives tend to be impatient when dealing

with sales calls concerning opportunities in which they have no interest. These marketing

problems typify any private negotiated markets. Due to these problems and other

problems like these, brokers who deal with small to mid-sized companies often deal with

much more strenuous conditions than other business brokers. Mid-sized business brokers

have an average life-span of only 12-18 months and usually never grow beyond 1 or 2

employees. Exceptions to this are few and far between. Some of these exceptions include

The Sundial Group, Geneva Business Services and Robbinex.

The market inefficiencies can prove detrimental for this important sectorof the economy.

Beyond the intermediaries' high fees, the current process for mergers and acquisitions has

the effect of causing private companies to initially sell their shares at a significant

discount relative to what the same company might sell for were it already publicly traded.

An important and large sector of the entire economy is held back by the difficulty in

conducting corporate M&A (and also in raising equity ordebt capital). Furthermore, it is

likely that since privately held companies are so difficult to sell they are not sold as often

as they might or should be.

Previous attempts to streamline the M&A process through computers have failed to

succeed on a large scale because they have provided mere "bulletin boards" - static

information that advertises one firm's opportunities. Users must still seek other sources

for opportunities just as if the bulletin board were not electronic. A multiple listings
http://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Telephonehttp://en.wikipedia.org/w/index.php?title=The_Sundial_Group&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Geneva_Business_Services&action=edit&redlink=1http://en.wikipedia.org/wiki/Robbinexhttp://en.wikipedia.org/wiki/List_of_recognized_economic_sectorshttp://en.wikipedia.org/wiki/Discounthttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Bulletin_boardhttp://en.wikipedia.org/wiki/Multiple_listings_servicehttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Telephonehttp://en.wikipedia.org/w/index.php?title=The_Sundial_Group&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Geneva_Business_Services&action=edit&redlink=1http://en.wikipedia.org/wiki/Robbinexhttp://en.wikipedia.org/wiki/List_of_recognized_economic_sectorshttp://en.wikipedia.org/wiki/Discounthttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Bulletin_boardhttp://en.wikipedia.org/wiki/Multiple_listings_service


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service concept was previously not used due to the need for confidentiality but there are

currently several in operation. The most significant of these are run by the California

Association of Business Brokers (CABB) and the International Business Brokers

Association (IBBA) These organizations have effectivily created a type of virtual market

without compromising the confidentiality of parties involved and without the

unauthorized release of information.

One part of the M&A process which can be improved significantly using networked

computers is the improved access to "data rooms" during the due diligence process

however only for larger transactions. For the purposes of small-medium sized business,

these datarooms serve no purpose and are generally not used. Reasons for frequent failure

of M&A was analyzed by Thomas Straub in "Reasons for frequent failure in mergers andacquisitions - a comprehensive analysis", DUV Gabler Edition, 2007.

[edit]The Great Merger Movement

The Great Merger Movement was a predominantly U.S. business phenomenon that

happened from 1895 to 1905. During this time, small firms with little market share

consolidated with similar firms to form large, powerful institutions that dominated their

markets. It is estimated that more than 1,800 of these firms disappeared intoconsolidations, many of which acquired substantial shares of the markets in which they

operated. The vehicle used were so-called trusts. To truly understand how large this

movement wasin 1900 the value of firms acquired in mergers was 20% of GDP. In

1990 the value was only 3% and from 19982000 is was around 1011% of GDP.

Organizations that commanded the greatest share of the market in 1905 saw that

command disintegrate by 1929 as smaller competitors joined forces with each other.

However, there were companies that merged during this time such as DuPont, Nabisco,

US Steel, and General Electric that have been able to keep their dominance in their

respected sectors today due to growing technological advances of their products, patents,

and brand recognition by their customers. These companies that merged were

consistently mass producers of homogeneous goods that could exploit the efficiencies of

large volume production. Companies which had specific fine products, like fine writing
http://en.wikipedia.org/wiki/Multiple_listings_servicehttp://en.wikipedia.org/w/index.php?title=California_Association_of_Business_Brokers&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=California_Association_of_Business_Brokers&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=CABB&action=edit&redlink=1http://en.wikipedia.org/wiki/International_Business_Brokers_Associationhttp://en.wikipedia.org/wiki/International_Business_Brokers_Associationhttp://en.wikipedia.org/wiki/IBBAhttp://en.wikipedia.org/wiki/Data_roomhttp://en.wikipedia.org/wiki/Due_diligencehttp://en.wikipedia.org/wiki/Dataroomhttp://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=15http://en.wikipedia.org/wiki/1895http://en.wikipedia.org/wiki/1895http://en.wikipedia.org/wiki/1905http://en.wikipedia.org/wiki/1905http://en.wikipedia.org/wiki/Trustshttp://en.wikipedia.org/wiki/Trustshttp://en.wikipedia.org/wiki/1900http://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/1990http://en.wikipedia.org/wiki/1998http://en.wikipedia.org/wiki/2000http://en.wikipedia.org/wiki/1905http://en.wikipedia.org/wiki/1929http://en.wikipedia.org/wiki/Multiple_listings_servicehttp://en.wikipedia.org/w/index.php?title=California_Association_of_Business_Brokers&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=California_Association_of_Business_Brokers&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=CABB&action=edit&redlink=1http://en.wikipedia.org/wiki/International_Business_Brokers_Associationhttp://en.wikipedia.org/wiki/International_Business_Brokers_Associationhttp://en.wikipedia.org/wiki/IBBAhttp://en.wikipedia.org/wiki/Data_roomhttp://en.wikipedia.org/wiki/Due_diligencehttp://en.wikipedia.org/wiki/Dataroomhttp://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=15http://en.wikipedia.org/wiki/1895http://en.wikipedia.org/wiki/1905http://en.wikipedia.org/wiki/Trustshttp://en.wikipedia.org/wiki/1900http://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/1990http://en.wikipedia.org/wiki/1998http://en.wikipedia.org/wiki/2000http://en.wikipedia.org/wiki/1905http://en.wikipedia.org/wiki/1929


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paper, earned their profits on high margin rather than volume and took no part in Great

Merger Movement.

[edit]Short-run factors

One of the major short run factors that sparked in The Great Merger Movement was the

desire to keep prices high. That is, with many firms in a market, supply of the product

remains high. During the panic of1893, the demand declined. When demand for the good

falls, as illustrated by the classic supply and demand model, prices are driven down. To

avoid this decline in prices, firms found it profitable to collude and manipulate supply to

counter any changes in demand for the good. This type of cooperation led to widespread

horizontal integration amongst firms of the era. Focusing on mass production allowed

firms to reduce unit costs to a much lower rate. These firms usually were capital-

intensive and had high fixed costs. Due to the fact that new machines were mostly

financed through bonds, interest payments on bonds were high followed by the panic of

1893, yet no firm was willing to accept quantity reduction during this period.

[edit]Long-run factors

In the long run, due to the desire to keep costs low, it was advantageous for firms to

merge and reduce their transportation costs thus producing and transporting from one

location rather than various sites of different companies as in the past. This resulted in

shipment directly to market from this one location. In addition, technological changes

prior to the merger movement within companies increased the efficient size of plants with

capital intensive assembly lines allowing for economies of scale. Thus improved

technology and transportation were forerunners to the Great Merger Movement. In part

due to competitors as mentioned above, and in part due to the government, however,

many of these initially successful mergers were eventually dismantled. The U.S.

government passed the Sherman Act in 1890, setting rules against price fixing and

monopolies. Starting in the 1890s with such cases as U.S. versus Addyston Pipe and Steel

Co., the courts attacked large companies for strategizing with others or within their own

companies to maximize profits. Price fixing with competitors created a greater incentive
http://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=16http://en.wikipedia.org/wiki/1893http://en.wikipedia.org/wiki/1893http://en.wikipedia.org/wiki/1893http://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=17http://en.wikipedia.org/wiki/Sherman_Acthttp://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=16http://en.wikipedia.org/wiki/1893http://en.wikipedia.org/wiki/1893http://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=17http://en.wikipedia.org/wiki/Sherman_Act


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for companies to unite and merge under one name so that they were not competitors

anymore and technically not price fixing.

[edit]Cross-border M&A

In a study conducted in 2000 by Lehman Brothers, it was found that, on average, large

M&A deals cause the domestic currency of the target corporation to appreciate by 1%

relative to the acquirer's. For every $1-billion deal, the currency of the target corporation

increased in value by 0.5%. More specifically, the report found that in the period

immediately after the deal is announced, there is generally a strong upward movement in

the target corporation's domestic currency (relative to the acquirer's currency). Fifty days

after the announcement, the target currency is then, on average, 1% stronger.[1]

The rise ofglobalization has exponentially increased the market for cross border M&A.

In 1996 alone there were over 2000 cross border transactions worth a total of

approximately $256 billion. This rapid increase has taken many M&A firms by surprise

because the majority of them never had to consider acquiring the capabilities or skills

required to effectively handle this kind of transaction. In the past, the market's lack of

significance and a more strictly national mindset prevented the vast majority of small and

mid-sized companies from considering cross border intermediation as an option whichleft M&A firms inexperienced in this field. This same reason also prevented the

development of any extensive academic works on the subject.

Due to the complicated nature of cross border M&A, the vast majority of cross border

actions have unsuccessful results. Cross border intermediation has many more levels of

complexity to it then regular intermediation seeing as corporate governance, the power of

the average employee, company regulations, political factors customer expectations, and

countries' culture are all crucial factors that could spoil the transaction.[2][3]

[edit]Major M&A in the 1990s

Top 10 M&A deals worldwide by value (in mil. USD) from 1990 to 1999:
http://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=18http://en.wikipedia.org/wiki/Lehman_Brothershttp://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/#cite_note-0http://en.wikipedia.org/wiki/Globalizationhttp://en.wikipedia.org/wiki/#cite_note-1http://en.wikipedia.org/wiki/#cite_note-2http://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=19http://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=18http://en.wikipedia.org/wiki/Lehman_Brothershttp://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/#cite_note-0http://en.wikipedia.org/wiki/Globalizationhttp://en.wikipedia.org/wiki/#cite_note-1http://en.wikipedia.org/wiki/#cite_note-2http://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=19


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Rank Year Purchaser PurchasedTransaction value (in mil.

USD)

1 199

9

Vodafone Airtouch

PLC[4]Mannesmann 183,000

2199

9Pfizer[5] Warner-Lambert 90,000

3199

8Exxon[6][7] Mobil 77,200

4199

9Citicorp Travelers Group 73,000

5199

9SBC Communications Ameritech Corporation 63,000

6 1999

Vodafone Group AirTouchCommunications

60,000

7199

8Bell Atlantic[8] GTE 53,360

8199

8BP[9] Amoco 53,000

9199

9Qwest Communications US WEST 48,000

10199

Worldcom MCI Communications 42,000
http://en.wikipedia.org/wiki/Vodafone_Airtouch_PLChttp://en.wikipedia.org/wiki/Mannesmannhttp://en.wikipedia.org/wiki/Vodafone_Airtouch_PLChttp://en.wikipedia.org/wiki/#cite_note-3http://en.wikipedia.org/wiki/Mannesmannhttp://en.wikipedia.org/wiki/Pfizerhttp://en.wikipedia.org/wiki/Pfizerhttp://en.wikipedia.org/wiki/#cite_note-4http://en.wikipedia.org/wiki/Warner-Lamberthttp://en.wikipedia.org/wiki/Exxonhttp://en.wikipedia.org/wiki/Exxonhttp://en.wikipedia.org/wiki/#cite_note-5http://en.wikipedia.org/wiki/#cite_note-6http://en.wikipedia.org/wiki/Mobilhttp://en.wikipedia.org/wiki/Citicorphttp://en.wikipedia.org/wiki/Travelers_Grouphttp://en.wikipedia.org/wiki/SBC_Communicationshttp://en.wikipedia.org/wiki/Ameritech_Corporationhttp://en.wikipedia.org/wiki/Vodafone_Grouphttp://en.wikipedia.org/wiki/AirTouch_Communicationshttp://en.wikipedia.org/wiki/AirTouch_Communicationshttp://en.wikipedia.org/wiki/Bell_Atlantichttp://en.wikipedia.org/wiki/Bell_Atlantichttp://en.wikipedia.org/wiki/#cite_note-7http://en.wikipedia.org/wiki/GTEhttp://en.wikipedia.org/wiki/BPhttp://en.wikipedia.org/wiki/BPhttp://en.wikipedia.org/wiki/#cite_note-8http://en.wikipedia.org/wiki/Amocohttp://en.wikipedia.org/wiki/Qwest_Communicationshttp://en.wikipedia.org/wiki/US_WESThttp://en.wikipedia.org/wiki/MCI_Inc.http://en.wikipedia.org/wiki/MCI_Communicationshttp://en.wikipedia.org/wiki/Vodafone_Airtouch_PLChttp://en.wikipedia.org/wiki/Vodafone_Airtouch_PLChttp://en.wikipedia.org/wiki/#cite_note-3http://en.wikipedia.org/wiki/Mannesmannhttp://en.wikipedia.org/wiki/Pfizerhttp://en.wikipedia.org/wiki/#cite_note-4http://en.wikipedia.org/wiki/Warner-Lamberthttp://en.wikipedia.org/wiki/Exxonhttp://en.wikipedia.org/wiki/#cite_note-5http://en.wikipedia.org/wiki/#cite_note-6http://en.wikipedia.org/wiki/Mobilhttp://en.wikipedia.org/wiki/Citicorphttp://en.wikipedia.org/wiki/Travelers_Grouphttp://en.wikipedia.org/wiki/SBC_Communicationshttp://en.wikipedia.org/wiki/Ameritech_Corporationhttp://en.wikipedia.org/wiki/Vodafone_Grouphttp://en.wikipedia.org/wiki/AirTouch_Communicationshttp://en.wikipedia.org/wiki/AirTouch_Communicationshttp://en.wikipedia.org/wiki/Bell_Atlantichttp://en.wikipedia.org/wiki/#cite_note-7http://en.wikipedia.org/wiki/GTEhttp://en.wikipedia.org/wiki/BPhttp://en.wikipedia.org/wiki/#cite_note-8http://en.wikipedia.org/wiki/Amocohttp://en.wikipedia.org/wiki/Qwest_Communicationshttp://en.wikipedia.org/wiki/US_WESThttp://en.wikipedia.org/wiki/MCI_Inc.http://en.wikipedia.org/wiki/MCI_Communications


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7

[edit]Major M&A from 2000 to present

Top 9 M&A deals worldwide by value (in mil. USD) since 2000:[10]

Rank Year Purchaser PurchasedTransaction value (in

mil. USD)

1200

0

Fusion: America Online Inc.

(AOL)[11][12]Time Warner 164,747

2200

0Glaxo Wellcome Plc.

SmithKline Beecham

Plc.75,961

3200

4Royal Dutch Petroleum Co.

Shell Transport &

Trading Co74,559

4 2006

AT&T Inc.[13][14] BellSouth Corporation 72,671

5200

1Comcast Corporation

AT&T Broadband &

Internet Svcs72,041

6200

4Sanofi-Synthelabo SA Aventis SA 60,243

7200

0

Spin-off: Nortel Networks

Corporation59,974

8200

PfizerInc. Pharmacia Corporation 59,515
http://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=20http://en.wikipedia.org/wiki/#cite_note-9http://en.wikipedia.org/wiki/Time_Warnerhttp://en.wikipedia.org/wiki/#cite_note-10http://en.wikipedia.org/wiki/#cite_note-11http://en.wikipedia.org/wiki/Time_Warnerhttp://en.wikipedia.org/wiki/Glaxo_Wellcomehttp://en.wikipedia.org/wiki/SmithKline_Beechamhttp://en.wikipedia.org/wiki/AT%26Thttp://en.wikipedia.org/wiki/#cite_note-12http://en.wikipedia.org/wiki/#cite_note-13http://en.wikipedia.org/wiki/BellSouthhttp://en.wikipedia.org/wiki/AT%26Thttp://en.wikipedia.org/wiki/Pfizerhttp://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=20http://en.wikipedia.org/wiki/#cite_note-9http://en.wikipedia.org/wiki/#cite_note-10http://en.wikipedia.org/wiki/#cite_note-11http://en.wikipedia.org/wiki/Time_Warnerhttp://en.wikipedia.org/wiki/Glaxo_Wellcomehttp://en.wikipedia.org/wiki/SmithKline_Beechamhttp://en.wikipedia.org/wiki/AT%26Thttp://en.wikipedia.org/wiki/#cite_note-12http://en.wikipedia.org/wiki/#cite_note-13http://en.wikipedia.org/wiki/BellSouthhttp://en.wikipedia.org/wiki/AT%26Thttp://en.wikipedia.org/wiki/Pfizer


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2

9200

4

JP Morgan Chase & Co[15] Bank One Corp 58,761

[edit]See also

Mergers and acquisitions in United Kingdom law

Competition regulator

Control premium

Divestiture

Factoring (finance)

Fairness opinion

International Financial Reporting Standards

List of bank mergers in United States

Management control

Merger control

Merger integration

Merger simulation

Shakeout

Tulane Corporate Law Institute

[edit]References

1. ^ Lien, Kathy (2005-10-12). Mergers And Acquisitions - Another Tool For

Traders. Investopedia. Retrieved on2007-06-17.

2. ^ Finklestein, Sydney. Cross Border Mergers and Acquisitions. Dartmouth

College. Retrieved on 2007-08-09.

3. ^ Platt, Gordon. Cross-Border Mergers Show Rising Trend As Global Economy

Expands. findarticles.com. Retrieved on 2007-08-09.

4. ^http://money.cnn.com/2000/02/03/europe/vodafone/
http://en.wikipedia.org/wiki/#cite_note-14http://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=21http://en.wikipedia.org/wiki/Mergers_and_acquisitions_in_United_Kingdom_lawhttp://en.wikipedia.org/wiki/Mergers_and_acquisitions_in_United_Kingdom_lawhttp://en.wikipedia.org/wiki/Competition_regulatorhttp://en.wikipedia.org/wiki/Competition_regulatorhttp://en.wikipedia.org/wiki/Control_premiumhttp://en.wikipedia.org/wiki/Divestiturehttp://en.wikipedia.org/wiki/Factoring_(finance)http://en.wikipedia.org/wiki/Factoring_(finance)http://en.wikipedia.org/wiki/Fairness_opinionhttp://en.wikipedia.org/wiki/International_Financial_Reporting_Standardshttp://en.wikipedia.org/wiki/International_Financial_Reporting_Standardshttp://en.wikipedia.org/wiki/List_of_bank_mergers_in_United_Stateshttp://en.wikipedia.org/wiki/Management_controlhttp://en.wikipedia.org/wiki/Merger_controlhttp://en.wikipedia.org/wiki/Merger_controlhttp://en.wikipedia.org/wiki/Merger_integrationhttp://en.wikipedia.org/wiki/Merger_integrationhttp://en.wikipedia.org/wiki/Merger_simulationhttp://en.wikipedia.org/wiki/Shakeouthttp://en.wikipedia.org/wiki/Tulane_Corporate_Law_Institutehttp://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=22http://en.wikipedia.org/wiki/#cite_ref-0http://en.wikipedia.org/wiki/2005http://en.wikipedia.org/wiki/October_12http://www.investopedia.com/articles/forex/05/MA.asphttp://www.investopedia.com/articles/forex/05/MA.asphttp://en.wikipedia.org/wiki/2007http://en.wikipedia.org/wiki/2007http://en.wikipedia.org/wiki/June_17http://en.wikipedia.org/wiki/#cite_ref-1http://mba.tuck.dartmouth.edu/pages/faculty/syd.finkelstein/articles/Cross_Border.pdfhttp://en.wikipedia.org/wiki/2007http://en.wikipedia.org/wiki/August_9http://en.wikipedia.org/wiki/#cite_ref-2http://findarticles.com/p/articles/mi_qa3715/is_200412/ai_n9466795http://findarticles.com/p/articles/mi_qa3715/is_200412/ai_n9466795http://en.wikipedia.org/wiki/2007http://en.wikipedia.org/wiki/August_9http://en.wikipedia.org/wiki/#cite_ref-3http://money.cnn.com/2000/02/03/europe/vodafone/http://money.cnn.com/2000/02/03/europe/vodafone/http://en.wikipedia.org/wiki/#cite_note-14http://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=21http://en.wikipedia.org/wiki/Mergers_and_acquisitions_in_United_Kingdom_lawhttp://en.wikipedia.org/wiki/Competition_regulatorhttp://en.wikipedia.org/wiki/Control_premiumhttp://en.wikipedia.org/wiki/Divestiturehttp://en.wikipedia.org/wiki/Factoring_(finance)http://en.wikipedia.org/wiki/Fairness_opinionhttp://en.wikipedia.org/wiki/International_Financial_Reporting_Standardshttp://en.wikipedia.org/wiki/List_of_bank_mergers_in_United_Stateshttp://en.wikipedia.org/wiki/Management_controlhttp://en.wikipedia.org/wiki/Merger_controlhttp://en.wikipedia.org/wiki/Merger_integrationhttp://en.wikipedia.org/wiki/Merger_simulationhttp://en.wikipedia.org/wiki/Shakeouthttp://en.wikipedia.org/wiki/Tulane_Corporate_Law_Institutehttp://en.wikipedia.org/w/index.php?title=Mergers_and_acquisitions&action=edit&section=22http://en.wikipedia.org/wiki/#cite_ref-0http://en.wikipedia.org/wiki/2005http://en.wikipedia.org/wiki/October_12http://www.investopedia.com/articles/forex/05/MA.asphttp://www.investopedia.com/articles/forex/05/MA.asphttp://en.wikipedia.org/wiki/2007http://en.wikipedia.org/wiki/June_17http://en.wikipedia.org/wiki/#cite_ref-1http://mba.tuck.dartmouth.edu/pages/faculty/syd.finkelstein/articles/Cross_Border.pdfhttp://en.wikipedia.org/wiki/2007http://en.wikipedia.org/wiki/August_9http://en.wikipedia.org/wiki/#cite_ref-2http://findarticles.com/p/articles/mi_qa3715/is_200412/ai_n9466795http://findarticles.com/p/articles/mi_qa3715/is_200412/ai_n9466795http://en.wikipedia.org/wiki/2007http://en.wikipedia.org/wiki/August_9http://en.wikipedia.org/wiki/#cite_ref-3http://money.cnn.com/2000/02/03/europe/vodafone/


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5. ^ http://www.pfizer.ca/english/newsroom/press%20releases/default.asp?

s=1&year=2000&releaseID=29

6. ^http://money.cnn.com/1998/12/01/deals/exxon/

7. ^http://www.sunsonline.org/trade/process/followup/1998/12030298.htm

8. ^http://www.fool.com/features/1998/sp980728BellAtlanticGTEMerger.htm

9. ^http://www.eia.doe.gov/emeu/finance/fdi/ad2000.html

10. ^Top Mergers & Acquisitions (M&A) Deals. Institute of Mergers, Acquisitions

and Alliances (MANDA). Retrieved on2007-06-17.

11. ^http://www.pbs.org/newshour/bb/business/aol_time_index.html

12. ^http://money.cnn.com/2000/01/10/deals/aol_warner/

13. ^http://www.cbsnews.com/stories/2006/03/05/business/main1369428.shtml

14. ^ http://www.att.com/gen/press-room?

pid=4800&cdvn=news&newsarticleid=22860

15. ^http://money.cnn.com/2004/01/14/news/deals/jpmorgan_bankone/

Straub, Thomas: Reasons for frequent failure in Mergers and Acquisitions - A

comprehensive analysis, Deutscher Universittsverlag, Wiesbaden 2007.

ISBN 978-3835008441

Harwood, I.A. (2006). Confidentiality constraints within mergers and

acquisitions: gaining insights through a 'bubble' metaphor. British Journal of

Management, Vol. 17, Issue 4., 347-359.[1]

Retrieved from "http://en.wikipedia.org/wiki/Mergers_and_acquisitions"

Categories: Monopoly (economics) |Political
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mergers and acquisitions.doc