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88-415: According to Comma 3, a new company may replace a bankrupt football club from the same city. With this acquisition, the new company has to take over the liabilities to pay any costs, as well as any outstanding taxes. Comma 4 is similar to Comma 3 in semiprofessional and amatorial leagues. Comma 5 allows the merging of two or more clubs. The new team follows the sport rights of any one of the two clubs that

176-452: A corporate raider , can purchase a large fraction of the company's stock and, in doing so, get enough votes to replace the board of directors and the CEO . With a new agreeable management team, the stock is, potentially, a much more attractive investment, which might result in a price rise and a profit for the corporate raider and the other shareholders. A well-known example of a reverse takeover in

264-425: A merger or takeover. The party who initiates a hostile takeover bid approaches the shareholders directly, as opposed to seeking approval from officers or directors of the company. A takeover is considered hostile if the target company's board rejects the offer, and if the bidder continues to pursue it, or the bidder makes the offer directly after having announced its firm intention to make an offer. Development of

352-679: A monopoly ", and the Hart–Scott–Rodino Act requires notifying the U.S. Department of Justice 's Antitrust Division and the Federal Trade Commission about any merger or acquisition over a certain size. An acquisition/takeover is the purchase of one business or company by another company or other business entity. Specific acquisition targets can be identified through myriad avenues, including market research, trade expos, sent up from internal business units, or supply chain analysis. Such purchase may be of 100%, or nearly 100%, of

440-399: A "loan note alternative" that allows shareholders to take a part or all of their consideration in loan notes rather than cash. This is done primarily to make the offer more attractive in terms of taxation . A conversion of shares into cash is counted as a disposal that triggers a payment of capital gains tax , whereas if the shares are converted into other securities , such as loan notes,

528-445: A bidder makes an offer for another company, it usually first informs the company's board of directors . Ideally, if the board feels that accepting the offer serves the shareholders better than rejecting it, it recommends the offer be accepted by the shareholders. In a private company, because the shareholders and the board are usually the same people or closely connected with one another, private acquisitions are usually friendly. If

616-405: A business retain just a handful of key players that would have otherwise left. Organizations should move rapidly to re-recruit key managers. It's much easier to succeed with a team of quality players that one selects deliberately rather than try to win a game with those who randomly show up to play. Mergers and acquisitions often create brand problems, beginning with what to call the company after

704-555: A business, which accrues to both categories of stakeholders, is called the Enterprise Value (EV), whereas the value which accrues just to shareholders is the Equity Value (also called market capitalization for publicly listed companies). Enterprise Value reflects a capital structure neutral valuation and is frequently a preferred way to compare value as it is not affected by a company's, or management's, strategic decision to fund

792-417: A company an easier takeover target. When the company gets bought out (or taken private) – at a dramatically lower price – the takeover artist gains a windfall from the former top executive's actions to surreptitiously reduce the company's stock price. This can represent tens of billions of dollars (questionably) transferred from previous shareholders to the takeover artist. The former top executive

880-473: A function of their acquisition activity. Therefore, additional motives for merger and acquisition that may not add shareholder value include: The M&A process itself is a multifaceted which depends upon the type of merging companies. The M&A process results in the restructuring of a business's purpose, corporate governance and brand identity. An arm's length merger is a merger: ″The two elements are complementary and not substitutes. The first element

968-752: A high-risk position. High leverage will lead to high profits if circumstances go well but can lead to catastrophic failure if they do not. This can create substantial negative externalities for governments, employees, suppliers and other stakeholders . Corporate takeovers occur frequently in the United States , Canada , United Kingdom , France and Spain . They happen only occasionally in Italy because larger shareholders (typically controlling families) often have special board voting privileges designed to keep them in control. They do not happen often in Germany because of

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1056-462: A hostile bidder because of the relative lack of target information which is available to them. Under Delaware law, boards must engage in defensive actions that are proportional to the hostile bidder's threat to the target company. A well-known example of an extremely hostile takeover was Oracle's bid to acquire PeopleSoft . As of 2018, about 1,788 hostile takeovers with a total value of US$ 28.86 billion had been announced. A reverse takeover

1144-433: A larger and/or longer-established company and retain the name of the latter for the post-acquisition combined entity. This is known as a reverse takeover . Another type of acquisition is the reverse merger , a form of transaction that enables a private company to be publicly listed in a relatively short time frame. A reverse merger is a type of merger where a privately held company, typically one with promising prospects and

1232-511: A legal and financial point of view, both mergers and acquisitions generally result in the consolidation of assets and liabilities under one entity, and the distinction between the two is not always clear. Most countries require mergers and acquisitions to comply with antitrust or competition law . In the United States , for example, the Clayton Act outlaws any merger or acquisition that may "substantially lessen competition" or "tend to create

1320-426: A merger or acquisition transaction can range from political to tactical. Ego can drive choice just as well as rational factors such as brand value and costs involved with changing brands. Beyond the bigger issue of what to call the company after the transaction comes the ongoing detailed choices about what divisional, product and service brands to keep. The detailed decisions about the brand portfolio are covered under

1408-436: A merger, a tender offer or a hostile takeover. As an aspect of strategic management , M&A can allow enterprises to grow or downsize , and change the nature of their business or competitive position. Technically, a merger is the legal consolidation of two business entities into one, whereas an acquisition occurs when one entity takes ownership of another entity's share capital , equity interests or assets . From

1496-444: A need for financing, acquires a publicly listed shell company that has few assets and no significant business operations. The combined evidence suggests that the shareholders of acquired firms realize significant positive "abnormal returns," while shareholders of the acquiring company are most likely to experience a negative wealth effect. Most studies indicate that M&A transactions have a positive net effect, with investors in both

1584-418: A new company based on the historic sporting merit of an old club. However, in such a situation, the new club was automatically relegated to one level below the original club. In 2008, this changed to an automatic relegation two levels below the original club, and was limited to Serie A and B clubs only. However, the ruling was repealed in 2015, as its criteria were too subjective. Some clubs unsuccessfully tried

1672-401: A new market without having to take on the risk, time and expense of starting a new division. An acquiring company could decide to take over a competitor not only because the competitor is profitable, but in order to eliminate competition in its field and make it easier, in the long term, to raise prices. Also a takeover could fulfill the belief that the combined company can be more profitable than

1760-515: A new one which will approve the takeover. Another method involves quietly purchasing enough stock on the open market, known as a creeping tender offer or dawn raid , to effect a change in management. In all of these ways, management resists the acquisition, but it is carried out anyway. In the United States, a common defense tactic against hostile takeovers is to use section 16 of the Clayton Act to seek an injunction, arguing that section 7 of

1848-607: A previous purchase of shares. In particular: The Rules Governing the Substantial Acquisition of Shares, which used to accompany the Code and which regulated the announcement of certain levels of shareholdings, have now been abolished, though similar provisions still exist in the Companies Act 1985 . There are a variety of reasons why an acquiring company may wish to purchase another company. Some takeovers are opportunistic –

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1936-402: A proposed takeover, and this has resulted in the following takeover classifications: friendly, hostile, reverse or back-flip. Financing a takeover often involves loans or bond issues which may include junk bonds as well as a simple cash offers. It can also include shares in the new company. A friendly takeover is an acquisition which is approved by the management of the target company. Before

2024-469: A public perception that private entities are more efficiently run, reinforcing the political will to sell off public assets. Takeovers also tend to substitute debt for equity. In a sense, any government tax policy of allowing for deduction of interest expenses but not of dividends , has essentially provided a substantial subsidy to takeovers. It can punish more-conservative or prudent management that does not allow their companies to leverage themselves into

2112-480: A publicly held asset or non-profit organization undergoes privatization . Top executives often reap tremendous monetary benefits when a government owned or non-profit entity is sold to private hands. Just as in the example above, they can facilitate this process by making the entity appear to be in financial crisis. This perception can reduce the sale price (to the profit of the purchaser) and make non-profits and governments more likely to sell. It can also contribute to

2200-434: A situation where one company splits into two, generating a second company which may or may not become separately listed on a stock exchange. As per knowledge-based views, firms can generate greater values through the retention of knowledge-based resources which they generate and integrate. Extracting technological benefits during and after acquisition is an ever-challenging issue because of organizational differences. Based on

2288-550: A special committee of independent directors; and 2) conditioned on an affirmative vote of a majority of the minority stockholders, the business judgment standard of review should presumptively apply, and any plaintiff ought to have to plead particularized facts that, if true, support an inference that, despite the facially fair process, the merger was tainted because of fiduciary wrongdoing.″ A Strategic merger usually refers to long-term strategic holding of target (Acquired) firm. This type of M&A process aims at creating synergies in

2376-492: A struggling company with a very well-known brand. Examples include: Often a company acquiring another pays a specified amount for it. This money can be raised in a number of ways. Although the company may have sufficient funds available in its account, remitting payment entirely from the acquiring company's cash on hand is unusual. More often, it will be borrowed from a bank , or raised by an issue of bonds . Acquisitions financed through debt are known as leveraged buyouts , and

2464-480: A takeover of a company consists of simply an offer of an amount of money per share (as opposed to all or part of the payment being in shares or loan notes), then this is an all-cash deal. The purchasing company can source the necessary cash in a variety of ways, including existing cash resources, loans, or a separate issue of company shares . Takeovers in the UK (meaning acquisitions of public companies only) are governed by

2552-468: A total value of US$ 2,164.4 bil. Some of the largest mergers of equals took place during the dot-com bubble of the late 1990s and in the year 2000: AOL and Time Warner (US$ 164 bil.), SmithKline Beecham and Glaxo Wellcome (US$ 75 bil.), Citicorp and Travelers Group (US$ 72 bil.). More recent examples this type of combinations are DuPont and Dow Chemical (US$ 62 bil.) and Praxair and Linde (US$ 35 bil.). An analysis of 1,600 companies across industries revealed

2640-456: Is friendly or hostile . Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful. "Serial acquirers" appear to be more successful with M&A than companies who make acquisitions only occasionally (see Douma & Schreuder, 2013, chapter 13). The new forms of buy out created since the crisis are based on serial type acquisitions known as an ECO Buyout which

2728-474: Is a co-community ownership buy out and the new generation buy outs of the MIBO (Management Involved or Management & Institution Buy Out) and MEIBO (Management & Employee Involved Buy Out). Whether a purchase is perceived as being "friendly" or "hostile" depends significantly on how the proposed acquisition is communicated to and perceived by the target company's board of directors, employees, and shareholders. It

Article 52 of NOIF - Misplaced Pages Continue

2816-426: Is a triangular merger, where the target company merges with a shell company wholly owned by the buyer, thus becoming a subsidiary of the buyer. In a "forward triangular merger ", the target company merges into the subsidiary, with the subsidiary as the surviving company of the merger; a "reverse triangular merger" is similar except that the subsidiary merges into the target company, with the target company surviving

2904-532: Is a type of takeover where a public company acquires a private company. This is usually done at the instigation of the private company, the purpose being for the private company to effectively float itself while avoiding some of the expense and time involved in a conventional IPO . However, in the UK under AIM rules, a reverse takeover is an acquisition or acquisitions in a twelve-month period which for an AIM company would: An individual or organization, sometimes known as

2992-425: Is between two competitors in the same industry. A vertical merger occurs when two firms combine across the value chain, such as when a firm buys a former supplier (backward integration) or a former customer (forward integration). When there is no strategic relatedness between an acquiring firm and its target, this is called a conglomerate merger (Douma & Schreuder, 2013). The form of merger most often employed

3080-399: Is combined into another entity by operation of the corporate law statute(s) of the jurisdiction of the merging entities. In a transaction structured as a merger or an equity purchase, the buyer acquires all of the assets and liabilities of the acquired entity. In a transaction structured as an asset purchase, the buyer and seller agree on which assets and liabilities the buyer will acquire from

3168-425: Is complete, the parties may proceed to draw up a definitive agreement, known as a "merger agreement", "share purchase agreement," or "asset purchase agreement" depending on the structure of the transaction. Such contracts are typically 80 to 100 pages long and focus on five key types of terms: Following the closing of a deal, adjustments may be made to some of the provisions outlined in the purchase agreement, such as

3256-457: Is considered to be more convenient. It is one of the oldest FIGC rules, and one team who applied this rule was UC Sampdoria (1946), which inherited and continued the history of its forerunner, SG Sampierdarenese, in Serie A. Lodo Petrucci (Petrucci Award) was a ruling named after Gianni Petrucci . Ratified in 2004, instead of acquiring the sports title by clearing the debt, FIGC awards the title to

3344-426: Is important because the directors have the capability to act as effective and active bargaining agents, which disaggregated stockholders do not. But, because bargaining agents are not always effective or faithful, the second element is critical, because it gives the minority stockholders the opportunity to reject their agents' work. Therefore, when a merger with a controlling stockholder was: 1) negotiated and approved by

3432-412: Is normal for M&A deal communications to take place in a so-called "confidentiality bubble," wherein the flow of information is restricted pursuant to confidentiality agreements. In the case of a friendly transaction, the companies cooperate in negotiations; in the case of a hostile deal, the board and/or management of the target is unwilling to be bought or the target's board has no prior knowledge of

3520-415: Is possible only when resources are exchanged and managed without affecting their independence. A corporate acquisition can be structured legally as either an "asset purchase" in which the seller sells business assets and liabilities to the buyer, an "equity purchase" in which the buyer purchases equity interests in a target company from one or more selling shareholders or a "merger" in which one legal entity

3608-460: Is provided by full-service investment banks- who often advise and handle the biggest deals in the world (called bulge bracket ) - and specialist M&A firms, who provide M&A only advisory, generally to mid-market, select industries and SBEs. Highly focused and specialized M&A advice investment banks are called boutique investment banks . The dominant rationale used to explain M&;A activity

Article 52 of NOIF - Misplaced Pages Continue

3696-487: Is that acquiring firms seek improved financial performance or reduce risk. The following motives are considered to improve financial performance or reduce risk: Megadeals—deals of at least one $ 1 billion in size—tend to fall into four discrete categories: consolidation, capabilities extension, technology-driven market transformation, and going private. On average and across the most commonly studied variables, acquiring firms' financial performance does not positively change as

3784-466: Is then rewarded with a golden handshake for presiding over the fire sale that can sometimes be in the hundreds of millions of dollars for one or two years of work. This is nevertheless an excellent bargain for the takeover artist, who will tend to benefit from developing a reputation of being very generous to parting top executives. This is just one example of a principal-agent problem, otherwise regarded as perverse incentive . Similar issues occur when

3872-501: The City Code on Takeovers and Mergers , also known as the 'City Code' or 'Takeover Code'. The rules for a takeover can be found in what is primarily known as 'The Blue Book'. The Code used to be a non-statutory set of rules that was controlled by city institutions on a theoretically voluntary basis. However, as a breach of the Code brought such reputational damage and the possibility of exclusion from city services run by those institutions, it

3960-521: The Hudson's Bay Company merged with the rival North West Company . The Great Merger Movement was a predominantly U.S. business phenomenon that happened from 1895 to 1905. During this time, small firms with little market share consolidated with similar firms to form large, powerful institutions that dominated their markets, such as the Standard Oil Company , which at its height controlled nearly 90% of

4048-500: The 2010 amendment. One example was the failed auction of Parma F.C. , which was in debt with €22.6 million (reduced from €70 million by the resettlement during administration). Mergers and acquisitions Mergers and acquisitions ( M&A ) are business transactions in which the ownership of companies , business organizations , or their operating units are transferred to or consolidated with another company or business organization. This could happen through direct absorption,

4136-791: The Great Merger Movement were able to keep their dominance in their respective sectors through 1929, and in some cases today, due to growing technological advances of their products, patents , and brand recognition by their customers. There were also other companies that held the greatest market share in 1905 but at the same time did not have the competitive advantages of the companies like DuPont and General Electric . These companies such as International Paper and American Chicle saw their market share decrease significantly by 1929 as smaller competitors joined forces with each other and provided much more competition. The companies that merged were mass producers of homogeneous goods that could exploit

4224-403: The Great Merger Movement. Takeover#Friendly takeovers In business, a takeover is the purchase of one company (the target ) by another (the acquirer or bidder ). In the UK , the term refers to the acquisition of a public company whose shares are publicly listed, in contrast to the acquisition of a private company . Management of the target company may or may not agree with

4312-569: The Lodo Petrucci, so they had to pay part of the old debts to create the new phoenix club. These cases were privately managed by the FIGC without specific rules as the ACF Fiorentina case in 2002: Comma 10 of the article allowed a new company to be admitted to Serie D in order to replace the old football club that was not admitted to professional leagues. Formerly Comma 9, it was changed to Comma 10 in

4400-471: The United Kingdom was Darwen Group 's 2008 takeover of Optare plc . This was also an example of a back-flip takeover (see below) as Darwen was rebranded to the more well-known Optare name. A backflip takeover is any sort of takeover in which the acquiring company turns itself into a subsidiary of the purchased company. This type of takeover can occur when a larger but less well-known company purchases

4488-450: The acquiring company's stock, issued to the shareholders of the acquired company at a given ratio proportional to the valuation of the latter. They receive stock in the company that is purchasing the smaller subsidiary. There are some elements to think about when choosing the form of payment. When submitting an offer, the acquiring firm should consider other potential bidders and think strategically. The form of payment might be decisive for

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4576-512: The acquisition so the team can focus on projects for their new employer). In recent years, these types of acquisitions have become common in the technology industry, where major web companies such as Facebook , Twitter , and Yahoo! have frequently used talent acquisitions to add expertise in particular areas to their workforces. Merger of equals is often a combination of companies of a similar size. Since 1990, there have been more than 625 M&A transactions announced as mergers of equals with

4664-420: The act, which prohibits acquisitions where the effect may be substantially to lessen competition or to tend to create a monopoly, would be violated if the offeror acquired the target's stock. The main consequence of a bid being considered hostile is practical rather than legal. If the board of the target cooperates, the bidder can conduct extensive due diligence into the affairs of the target company, providing

4752-514: The assets and liabilities that pertain solely to the unit being sold, determining whether the unit relies on services from other parts of the seller's organization, transferring employees, moving permits and licenses, and safeguarding against potential competition from the seller in the same business sector after the transaction is completed. From an economic point of view, business combinations can also be classified as horizontal, vertical and conglomerate mergers (or acquisitions). A horizontal merger

4840-563: The assets or ownership equity of the acquired entity. A consolidation/amalgamation occurs when two companies combine to form a new enterprise altogether, and neither of the previous companies remains independently owned. Acquisitions are divided into "private" and "public" acquisitions, depending on whether the acquiree or merging company (also termed a target ) is or is not publicly listed. Some public companies rely on acquisitions as an important value creation strategy. An additional dimension or categorization consists of whether an acquisition

4928-413: The bidder with a comprehensive analysis of the target company's finances. In contrast, a hostile bidder will only have more limited, publicly available information about the target company available, rendering the bidder vulnerable to hidden risks regarding the target company's finances. Since takeovers often require loans provided by banks in order to service the offer, banks are often less willing to back

5016-446: The business either through debt, equity, or a portion of both. Five common ways to "triangulate" the enterprise value of a business are: Professionals who value businesses generally do not use just one method, but a combination. Valuations implied using these methodologies can prove different to a company's current trading valuation. For public companies, the market based enterprise value and equity value can be calculated by referring to

5104-482: The buyer and target companies seeing positive returns. This suggests that M&A creates economic value, likely by transferring assets to more efficient management teams who can better utilize them. (See Douma & Schreuder, 2013, chapter 13). There are also a variety of structures used in securing control over the assets of a company, which have different tax and regulatory implications: The terms " demerger ", " spin-off " and "spin-out" are sometimes used to indicate

5192-469: The buyer. Hence, the analysis should be done from the acquiring firm's point of view. Synergy-creating investments are started by the choice of the acquirer, and therefore they are not obligatory, making them essentially real options . To include this real options aspect into analysis of acquisition targets is one interesting issue that has been studied lately. See also contingent value rights . Mergers are generally differentiated from acquisitions partly by

5280-462: The company's current account), liquidity ratios might decrease. On the other hand, in a pure stock for stock transaction (financed from the issuance of new shares), the company might show lower profitability ratios (e.g. ROA). However, economic dilution must prevail towards accounting dilution when making the choice. The form of payment and financing options are tightly linked. If the buyer pays cash, there are three main financing options: M&A advice

5368-581: The company's profitability appear temporarily poorer, or simply promote and report severely conservative (i.e. pessimistic) estimates of future earnings. Such seemingly adverse earnings news will be likely to (at least temporarily) reduce the company's stock price. (This is again due to information asymmetries since it is more common for top executives to do everything they can to window dress their company's earnings forecasts.) There are typically very few legal risks to being 'too conservative' in one's accounting and earnings estimates. A reduced share price makes

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5456-469: The company's share price and components on its balance sheet. The valuation methods described above represent ways to determine value of a company independently from how the market currently, or historically, has determined value based on the price of its outstanding securities. Most often value is expressed in a Letter of Opinion of Value (LOV) when the business is being valued informally. Formal valuation reports generally get more detailed and expensive as

5544-420: The content analysis of seven interviews, the authors concluded the following components for their grounded model of acquisition: An increase in acquisitions in the global business environment requires enterprises to evaluate the key stake holders of acquisitions very carefully before implementation. It is imperative for the acquirer to understand this relationship and apply it to its advantage. Employee retention

5632-430: The control of the buyer modified. If the issuance of shares is necessary, shareholders of the acquiring company might prevent such capital increase at the general meeting of shareholders. The risk is removed with a cash transaction. Then, the balance sheet of the buyer will be modified and the decision maker should take into account the effects on the reported financial results. For example, in a pure cash deal (financed from

5720-402: The debt will often be moved down onto the balance sheet of the acquired company. The acquired company then has to pay back the debt. This is a technique often used by private equity companies. The debt ratio of financing can go as high as 80% in some cases. In such a case, the acquiring company would only need to raise 20% of the purchase price. Cash offers for public companies often include

5808-405: The efficiencies of large volume production. In addition, many of these mergers were capital-intensive. Due to high fixed costs, when demand fell, these newly merged companies had an incentive to maintain output and reduce prices. However more often than not mergers were "quick mergers". These "quick mergers" involved mergers of companies with unrelated technology and different management. As a result,

5896-468: The efficiency gains associated with mergers were not present. The new and bigger company would actually face higher costs than competitors because of these technological and managerial differences. Thus, the mergers were not done to see large efficiency gains, they were in fact done because that was the trend at the time. Companies which had specific fine products, like fine writing paper, earned their profits on high margin rather than volume and took no part in

5984-473: The global oil refinery industry. It is estimated that more than 1,800 of these firms disappeared into consolidations, many of which acquired substantial shares of the markets in which they operated. The vehicle used were so-called trusts . In 1900 the value of firms acquired in mergers was 20% of GDP . In 1990 the value was only 3% and from 1998 to 2000 it was around 10–11% of GDP. Companies such as DuPont , U.S. Steel , and General Electric that merged during

6072-407: The hostile takeover is attributed to Louis Wolfson . A hostile takeover can be conducted in several ways. A tender offer can be made where the acquiring company makes a public offer at a fixed price above the current market price . An acquiring company can also engage in a proxy fight , whereby it tries to persuade enough shareholders, usually a simple majority , to replace the management with

6160-440: The long run by increased market share, broad customer base, and corporate strength of business. A strategic acquirer may also be willing to pay a premium offer to target firm in the outlook of the synergy value created after M&A process. The term "acqui-hire" is used to refer to acquisitions where the acquiring company seeks to obtain the target company's talent, rather than their products (which are often discontinued as part of

6248-440: The merger. Mergers, asset purchases and equity purchases are each taxed differently, and the most beneficial structure for tax purposes is highly situation-dependent. Under the U.S. Internal Revenue Code , a forward triangular merger is taxed as if the target company sold its assets to the shell company and then liquidated, them whereas a reverse triangular merger is taxed as if the target company's shareholders sold their stock in

6336-429: The most value from a business assessment, objectives should be clearly defined and the right resources should be chosen to conduct the assessment in the available timeframe. As synergy plays a large role in the valuation of acquisitions, it is paramount to get the value of synergies right; as briefly alluded to re DCF valuations. Synergies are different from the "sales price" valuation of the firm, as they will accrue to

6424-417: The offer. Hostile acquisitions can, and often do, ultimately become "friendly" as the acquirer secures endorsement of the transaction from the board of the acquiree company. This usually requires an improvement in the terms of the offer and/or through negotiation. "Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of

6512-446: The purchase price. These adjustments are subject to enforceability issues in certain situations. Alternatively, certain transactions use the 'locked box' approach, where the purchase price is fixed at signing and based on the seller's equity value at a pre-signing date and an interest charge. The assets of a business are pledged to two categories of stakeholders: equity owners and owners of the business' outstanding debt. The core value of

6600-446: The rewards for M&A activity were greater for consumer products companies than the average company. For the period 2000–2010, consumer products companies turned in an average annual TSR of 7.4%, while the average for all companies was 4.8%. Given that the cost of replacing an executive can run over 100% of his or her annual salary, any investment of time and energy in re-recruitment will likely pay for itself many times over if it helps

6688-448: The seller. Asset purchases are common in technology transactions in which the buyer is most interested in particular intellectual property but does not want to acquire liabilities or other contractual relationships. An asset purchase structure may also be used when the buyer wishes to buy a particular division or unit of a company that is not a separate legal entity. Divestitures present a variety of unique challenges, such as identifying

6776-442: The seller. With pure cash deals, there is no doubt on the real value of the bid (without considering an eventual earnout). The contingency of the share payment is indeed removed. Thus, a cash offer preempts competitors better than securities. Taxes are a second element to consider and should be evaluated with the counsel of competent tax and accounting advisers. Third, with a share deal the buyer's capital structure might be affected and

6864-407: The shareholders agree to sell the company, then the board is usually of the same mind or sufficiently under the orders of the equity shareholders to cooperate with the bidder. This point is not relevant to the UK concept of takeovers, which always involve the acquisition of a public company. A hostile takeover allows a bidder to take over a target company whose management is unwilling to agree to

6952-407: The simple effect of the profitability of the target company being added to the acquiring company's profitability. For example, an acquiring company may decide to purchase a company that is profitable and has good distribution capabilities in new areas which the acquiring company can use for its own products as well. A target company might be attractive because it allows the acquiring company to enter

7040-414: The size of a company increases, but this is not always the case as the nature of the business and the industry it is operating in can influence the complexity of the valuation task. Objectively evaluating the historical and prospective performance of a business is a challenge faced by many. Generally, parties rely on independent third parties to conduct due diligence studies or business assessments. To yield

7128-434: The target company may simply be very reasonably priced for one reason or another and the acquiring company may decide that in the long run, it will end up making money by purchasing the target company. The large holding company Berkshire Hathaway has profited well over time by purchasing many companies opportunistically in this manner. Other takeovers are strategic in that they are thought to have secondary effects beyond

7216-490: The target company to the buyer. The documentation of an M&A transaction often begins with a letter of intent . The letter of intent generally does not bind the parties to commit to a transaction, but may bind the parties to confidentiality and exclusivity obligations so that the transaction can be considered through a due diligence process involving lawyers, accountants, tax advisors, and other professionals, as well as business people from both sides. After due diligence

7304-432: The tax is rolled over. A takeover, particularly a reverse takeover , may be financed by an all-share deal. The bidder does not pay money, but instead issues new shares in itself to the shareholders of the company being acquired. In a reverse takeover the shareholders of the company being acquired end up with a majority of the shares in, and so control of, the company making the bid. The company has managerial rights. If

7392-632: The topic brand architecture . Most histories of M&A begin in the late 19th century United States. However, mergers coincide historically with the existence of companies. In 1708, for example, the East India Company merged with an erstwhile competitor to restore its monopoly over the Indian trade. In 1784, the Italian Monte dei Paschi and Monte Pio banks were united as the Monti Reuniti. In 1821,

7480-547: The transaction and going down into detail about what to do about overlapping and competing product brands. Decisions about what brand equity to write off are not inconsequential. And, given the ability for the right brand choices to drive preference and earn a price premium, the future success of a merger or acquisition depends on making wise brand choices. Brand decision-makers essentially can choose from four different approaches to dealing with naming issues, each with specific pros and cons: The factors influencing brand decisions in

7568-466: The two companies would be separately due to a reduction of redundant functions. Takeovers may also benefit from a principal-agent problem associated with top executive compensation. For example, it is fairly easy for a top executive to reduce the price of their company's stock due to information asymmetry . The executive can accelerate accounting of expected expenses, delay accounting of expected revenue, engage in off-balance-sheet transactions to make

7656-406: The way in which they are financed and partly by the relative size of the companies. Various methods of financing an M&A deal exist: Payment by cash. Such transactions are usually termed acquisitions rather than mergers because the shareholders of the target company are removed from the picture and the target comes under the (indirect) control of the bidder's shareholders. Payment in the form of

7744-503: Was regarded as binding. In 2006, the Code was put onto a statutory footing as part of the UK's compliance with the European Takeover Directive (2004/25/EC). The Code requires that all shareholders in a company should be treated equally. It regulates when and what information companies must and cannot release publicly in relation to the bid, sets timetables for certain aspects of the bid, and sets minimum bid levels following

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