Merger and

acquisition

Financial University under the Government of the Russian

Federation

Ruhulla Abdul

1st year IFF student

Moscow

2014

LEARNING GOALS

• Explanation of the difference between mergers and takeovers

• Main motives for merger or takeover

• Types of M&A

• Historical overview

• Main problems of M&A

Ruhulla Abdul

Financial University under the Government of the Russian Federation

Mergers and takeovers

Merger: Two or more businesses join

together and operate as one organization

with shared management

Ruhulla Abdul

Financial University under the Government of the Russian Federation

Takeover: One business acquires or

controls another in management through

buying over 51% of the shares

A B C A B A

Motives of mergers and takeovers

• Quick way of expansion

• Cheaper than internal growth

• Costs saving by cross selling

• Cash available

• Economy of scale

• Consolidating market position

• Greater efficiency

• Globalization

• Diversification

• …

Ruhulla Abdul

Financial University under the Government of the Russian Federation

Types of Mergers

Ruhulla Abdul

Financial University under the Government of the Russian Federation

• Horizontal Merger: A merger occurring between companies in the same industry (substitutes)

• Vertical Merger: A merger between two companies producing different goods or services for one specific finished product (complements)

• Conglomerate: A merger between firms that are involved in totally unrelated business activities

• Market Extension Mergers: A market extension merger takes place between two companies that deal in the same products but in separate markets

• Product Extension Mergers: A product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market

Types of Acquisitions

• Friendly acquisition: Both the companies approve of the acquisition under friendly terms. There is no forceful acquisition and the entire process is cordial.

• Hostile acquisition: The smaller company is either driven to such a condition that it has no option but to say yes to the acquisition to save its skin or the bigger company just buys off all its share, their by establishing majority and hence initiating the acquisition.

• Reverse acquisition: A private company takes over a public company.

• Back flip acquisition: A very rare case of acquisition in which, the purchasing company becomes a subsidiary of the purchased company.

Ruhulla Abdul

Financial University under the Government of the Russian Federation

Ruhulla Abdul

Financial University under the Government of the Russian Federation

Mergers and Acquisitions

Percentage of Public Companies Taken Over Each Quarter, 1926–2005

History affects the rise and fall of prices

Source: Martinova and

Renneboog 2008

Ruhulla Abdul

Financial University under the Government of the Russian Federation

Mergers and Acquisitions

Martinova and Renneboog 2008

Present History

Source: The New York Times

Ruhulla Abdul

Financial University under the Government of the Russian Federation

Why M&A fail

Ruhulla Abdul

Financial University under the Government of the Russian Federation

Conclusion

Ruhulla Abdul

Financial University under the Government of the Russian Federation

But remember, not all mergers fail. Size and global

reach can be advantageous, and strong managers

can often get greater efficiency from this deal.

Nevertheless, the promises made by deal makers

demand the careful analysis of investors. The success

of mergers depends on how realistic the deal makers

are and how well they can integrate two companies

while maintaining day-to-day operations

Thank You

Ruhulla Abdul

Financial University under the Government of the Russian Federation