The Mittal group and the Arcelor Steels merged while the Tatas took over Corus.
In a recent development,the UK based Vodafone acquired Hutch-Essar group in India.
The motive is simple :more market share..more of profits...wide scope of operation...
Although Mergers and Acquisitions are used interchangably, there is a slight difference.
In a Merger, the companies agree to operate as a single entity. The shares are surrendered and a fresh issue of shares in the name of the new company happens. This happens between the equals
Type of Mergers
Horizontal Mergers : This happens between the companies that are into direct competition and have the same product line.
Vertical Mergers : This happens between the supplier company or the customer and company.
Conglomeration : This takes between companies which have no common business areas.
Acquisition
When one company takes over the other company and establishes itself as the new owner, the purchase is known as Acquisition.The shares of the target company ceases to exists.
In this case the company can buy the other company with cash,stock or a combination of both.
The advantages of mergers and acquisitions :
- More visibility in the market
- Economies of scale
- Increas in the market share
- Reachability is more
- Elimination of competition
The disadvantages :
- If the merged companies deal in different ares, the cost of operation increases
- The major obstacle is the organization culture.
- It fails when the company focuses more on cost-cutting.
These M&As are facilitated by the Investment Bankers who help the companies in valuing the Assets ans Liabitlities. The leading I-Banks include The Lehman Bros.,JP Morgan Stanley and Goldman Sachs.Mergers and acquisitions can become a success if the mangement has a foresight for the future of the company and is not done in a haste.
(Contribution and Comments are welcome)
