CONTENTS
Mergers & Acquisitions
? Differential Efficiency & Financial Synergy: Theory of Mergers
? Operating Synergy & Pure Diversification: Theory of mergers
? Costs and Benefits of Merger
? Evaluation of Merger as a Capital Budgeting Decision
? Calculation of Exchange Ratio
Mergers & Acquisitions
When two or more companies agree to combine their operations, where one company survives and the other loses its corporate existence, a merger is affected. The surviving company acquires all the assets and liabilities of the merged company. The company that survives is generally the buyer and it either retains its identity or the merged company is provided with a new name.
Types of Mergers
1. Horizontal Mergers
2. Vertical Mergers
3. Conglomerate Mergers
Horizontal Mergers
This type of merger involves two firms that operate and compete in a similar kind of business. The merger is based on the assumption that it will provide economies of scale from the larger combined unit.
Example: Glaxo Wellcome Plc. and SmithKline Beecham Plc. megamerger
The two British pharmaceutical heavyweights Glaxo Wellcome PLC and SmithKline Beecham PLC early this year announced plans to merge resulting in the largest drug manufacturing company globally. The merger created a company valued at $182.4 billion and with a 7.3 per cent share of the global pharmaceutical market. The merged company expected $1.6 billion in pretax cost savings after three years. The two companies have complementary drug portfolios, and a merger would let them pool their research and development funds and would give the merged company a bigger sales and marketing force.
Vertical Mergers
Vertical mergers take place between firms in different ...