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TO
THE PRESENTATION

Presentation Topic
Merger & Acquisitions

What Does Merger & Acquisition

Means??

Merger means the combination of two or more companies in

creation of a new entity

Voluntary amalgamation of two firms on roughly equal terms

into one new legal entity. Mergers are effected by exchange of
the pre-merger stock (shares) for the stock of the new firm.
Owners of each pre-merger firm continue as owners, and the
resources of the merging entities are pooled for the benefit of
the new entity

Two companies usually agree to merge when they feel that

they can do something together that they can not do one their
own.

Acquisition

Acquisition or Takeover - one firm acquires the stock of another

Acquired firm is the target
An acquisition is a corporate action in which a company buys most, if
not all, of the target company's ownership stakes in order to assume
control of the target firm.
Acquisitions are often made as part of a company's growth strategy
whereby it is more beneficial to take over an existing firm's
operations and niche compared to expanding on its own.
Acquisitions are often paid in cash, the acquiring company's stock or
a combination of both.

Asset Acquisition

shareholder
shareholder
AA

shareholder
shareholder
BB

shareholder
shareholder
CC

shareholder
shareholder
DD

Lender
$$$
Board of
Director
s

Acquiringcorp.
corp.
Acquiring

Board of
Director
s

$$$
asset
s

Targetcorp.
corp.
Target

Board and shareholder approval of Target

Board (and maybe shareholder) approval of
Acquiring
assets of Target sold for $$$

Stock Purchase: Target becomes subsidiary of Acquiring

shareholder
shareholder
AA

shareholder
shareholder
BB

shareholder
shareholder
CC

shareholder
shareholder
DD

stock

Board of
Director
s

$$$

Acquiringcorp.
corp.
Acquiring
Acquiring buys stock of Target from
shareholders

Board of
Director
s

Targetcorp.
corp.
Target

Takeovers

A corporate action where an acquiring

company makes a bid for an acquiree. If
the target company is publicly traded,
the acquiring company will make an
offer for the outstanding shares.

Takeovers (cont.)
Merger or consolidation

Takeovers

Acquisition

Acquisition of stock

Proxy contest

Acquisition of assets

Going private

Takeover might be :
Hostile Takeover
A takeover attempt that is
strongly resisted by the
target firm
Friendly Takeover
Target company's
management and board
of directors agree to a
merger or acquisition by
another company.

Takeover defenses
Pre-Offer Takeover Defense
Mechanisms

Poison pills (flip-in pill and flip-over

pill)

Poison puts

Incorporation in a state with

restrictive takeover laws

Staggered board of directors

Restricted voting rights

Supermajority voting provisions

Fair price amendments

Golden parachutes

Post-Offer Takeover Defense

Mechanisms

Just say no defense

Litigation

Greenmail

Share repurchase

Leveraged recapitalization

Crown jewels defenses

Pac-Man defense

White knight defense

White squire defense

Copyright 2013 CFA Institute

12

Transaction
characteristics
Form of the Transaction

Copyright 2013 CFA Institute

13

Classification
Horizontal merger
Vertical merger
Conglomerate merger

Horizontal merger

A merger occurring between companies producing similar

products, goods and offerings similar services.

This type of merger occurs frequently as a result of larger

companies attempting to create more effective economies of
scale.

Shilpa Bank + Shilpa Rin Sangstha, = Bangladesh Development Bank Ltd

Classification (cont.)
Vertical Merger
o

A merger between two companies producing different goods and services

for one specific finished products.

The merger of the firm that have actual or potential buyer-seller relationship.

Example- Car manufacture purchasing a tire company.

Classification (cont.)
Conglomerate
A merger between firms that are involved in totally unrelated business
activities.
Two types of conglomerate mergers:
1.

Pure conglomerate mergers involve firms with nothing in common.

2. Mixed conglomerate mergers involve firms that are looking for product
extensions or market extensions.
Example- PepsiCo-Pizza Hut; Proctor & Gamble-Clorox.

Bangladeshi
Conglomerates
A K Khan & Company
Abul Khair Group
Advanced Chemical Industries
Aftab Automobiles
Akij
Ananda Group
Bashundhara Group
Beximco
City Group
Concord Group
Confidence Group
Zaman Group of Industries

Grameen
Habib Group
KDS Group
M. M. Ispahani Limited
Nasir Group
Nassa Group
Navana Group
Orion Group
P.K. Industries Ltd.
Partex Group
Summit Group
T K Group of Industries
Transcom Group

Why Merge or Acquire??

Companies merge or
acquire to create value

Synergy is the concept that

the value and performance
of two companies combined
will be greater than the sum
of the separate individual
parts

Sources of Synergy
Revenue synergies
Access to new markets, geographies and customers
Ability to cross-sell products
Vertical integration
Network effects
Cost synergies
Economies of scale
Economies of Scope
Cost efficiencies across value chain (e.g. consolidation of
manufacturing plants, savings in distribution/overlapping channels,
eliminating duplicative human resources)
Technology Transfer
Elimination of inefficient management
Tax gains
Use of tax losses
Use of unused debt capacity
Use of surplus fund

Tax Losses
EBT
Tax (35%)
Net Income

Rich Inc.

Poor Inc.

Merged

$2,000

($1,000)

$1,000

700

-0-

350

$1,400

($1,000)

$650

Combined Businesses pay less

total tax.

20