Mergers And Acquisitions
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Index:
Subject
page
introduction
mergers and acquisitions
definition
main idea
Distinction between Mergers and Acquisitions
Varieties of Mergers
Acquisitions
summary
bibliography
Introduction
Mergers and acquisitions or M&A for short. are a big part of the corporate finance world. Every day, wall street in the united states for example arrange M&A transactions that bring together separate companies to make larger ones. However in Kuwait there were never any mergers act only one in acquisition (example: Kuwait investment company with trading and contracting investment company), When theyre not creating big companies from smaller ones, corporate finance deals do the reverse and break up companies through spin-offs, carve-outs, or tracking stocks.
Not surprisingly, these types of actions often make the news. Deals can be worth hundreds of millions or even billions of KD, and they can dictate the fortunes of the companies involved for years to come. For CEOs, leading M&A can represent the pinnacle of their careers. Next time you flip open the al-Qabas or al-Watan newspapers business section, odds are good at least one headline will announce some kind of M&A transaction.
Mergers and acquisition
Before going any deeper we must understand the meaning of both mergers and acquisitions :
lets begin with definitions. There are a number of terms used that frequently get confused partly because of their similarity in meaning.
The definition (short summary):
Mergers:
A full joining together of two previously separate corporations or companies. A true merger in the legal sense occurs when both businesses dissolve and fold their assets and liabilities into a newly created third entity. This entails the creation of a new corporation, there were never any mergers companies to be mention in Kuwait, however in the united states there more than few for example the deals between many of the largest and most successful global firms such as Daimler-Chrysler, Chase-J.P. Morgan, McKinsey-Envision, UBS-Paine Webber, Credit Sussie-DLJ, Celltech-Medeva, SKB-Glaxo, NationsBank-Bank of America, AOL-Time Warner, Pfizer-Warner Lambert, Nestle-Purina.etc.
Acquisition:
Taking possession of another business. Also called a takeover or buyout. The process of gaining control, possession or ownership of a private portfolio company by an operating company or conglomerate.
The main idea is:
a merger or acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies–at least, thats the reasoning behind M&A.
This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone.
Distinction between Mergers and Acquisitions
When a company takes over another one and clearly becomes the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist and the buyer “swallows” the business, and stock of the buyer continues to be traded.
In the pure sense of the term, a merger happens when two firms, often about the same size, agree to go forward as a new single 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, Kuwait investment company with Kuwait foreign and trading and contracting investment company.
In practice, however, actual mergers of equals dont happen very often. Often, one company will buy another and, as part of the deals terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if its technically an acquisition. Being bought out often carries negative connotations. By using the term “merger,” dealmakers 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 in business is in the best interests of both 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.
So, 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 companys board of directors, employees and shareholders.
Varieties of Mergers :
From the perspective of business structures, there are a whole host of different mergers. Here are a few types, distinguished by the relationship between the two companies that are merging:
Horizontal merger: Two companies that are in direct competition in the same product lines and markets.
Vertical merger: A customer and company or a supplier and company. Think of a cone supplier to an ice cream maker.
Market-extension merger: Two companies that sell the same products in different markets.
Product-extension