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Merger:
A transaction where two firms agree to integrate their operations on a relatively coequal basis. A merger occurs when two or more organizations of about equal size combine to become one through an exchange of stock or cash or both. Mergers can take place in different ways
2006 by Nelson, a division of Thomson Canada Limited. 8-1 *
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Consolidation
If both firms dissolve their identity to create a new firm, it is called consolidation or amalgamation.
Friendly Merger
When both firms desire a merger or acquisiton, it is termed as a friendly merger.
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Takeover
A surprise attempt by one company to acquire control of another company against the will of the current management is a takeover or hostile takeover. It is usually done through the purchase of controlling share of voting shock in a publicly traded company. In the case of a takeover, the acquiring firm retains its identity wheras the target firm loses its identity after restructuring.
An acquisition where the target firm did not solicit the bid of the acquiring firm.
2006 by Nelson, a division of Thomson Canada Limited. 8-4
Demergers
Demerger or split or division of a company is the opposite of mergers and acquisitions. This happens when a part of the undertaking is transferred to a newly formed company or to an existing company. The size of the company after demerger would reduce.
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Types of Mergers
Horizontal Mergers Here the companies producing the same product or doing the same business join together The main purpose of such mergers is to obtain economies of scale in production by eliminating duplication of facilities and operations and broadening the product line, reduction in the investment of fixed assets and working capital, elimination of competition, reduction in advertising cost, increase the market power and to have better control over the market.
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Vertical Merger This is the joining of two or more companies involved in different stages of the production or distribution of the same product or service. The essential objective of such a merger is to ensure a source of supply required for the production of goods or services to ensure a ready market for the goods or services produced. It may take form of forward integration or backward integration.
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Lateral Merger It takes place when the firms producing different products which are related in some way or other. When a company producing ink, paper, case board, join with the printing press, it is called lateral merger.
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Conglomerated Merger It is the merger of two or more companies producing unrelated products.
Concentric Merger If the activities of the segments brought together are so related that there is carryover of specific mgmt functions or complimentary in relative strengths among them.
2006 by Nelson, a division of Thomson Canada Limited. 8-10
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Horizontal Acquisition
The acquisition of a company competing in the same industry in which the acquiring firm competes.
Vertical Acquisition
A firm acquiring a supplier of distributor of one or more of its goods or services.
Related Acquisition
The acquisition of a firm in a highly related industry.
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Overly Diversified
Acquirer doesnt have expertise required to manage unrelated businesses. GE--prior to selling businesses and refocusing
Too Large
Large bureaucracy reduced innovation & flexibility.
2006 by Nelson, a division of Thomson Canada Limited. 8-19
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Restructuring Activities
Downsizing
Wholesale reduction of employees. Agilient Technologies cutting of its workforce by 15,000 jobs
Downscoping
Selectively divesting or closing non-core businesses. Reducing scope of operations. Leads to greater focus. Telus cutting of its workforce by 6,000 jobs
Short-Term Outcomes
Reduced Labour Costs Reduced Debt Costs Emphasis on Strategic Controls
Long-Term Outcomes
Loss of Human Capital
Downsizing
Downscoping
Leveraged Buyout
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