Question

1. Define the term merger, and list some motives for mergers.
2. Characterize the different types of mergers.
3. Identify the five major “merger waves” that have occurred in the United States.
4. Differentiate between the merger processes in hostile versus friendly takeovers.
5. Briefly explain the need to regulate mergers, and whether states play a role in merger regulation.
6. Determine the value of a target firm using discounted cash flow analysis and the appropriate discount rate.
7. Explain whether corporate acquisitions create value and how the value is shared between the parties.

Answer 1

1. Define the term merger, and list some motives for mergers.

Merger normally means a to merge two or more companies into one company.

Example Vodafone and Mannesmann, in this case vodafone first acquired this business and merged it into Vodafone.

Motives

Become leader in industry by acquiring your competitors.

Gain access into international markets.

By making merger we can get the Research and Development of that company.

Create new business : example coca cola entered india in late 1900 and it did not have bottling plant so later it acquired thums up parent company in brewies and bottling division and later merged so by getting bottling got coke it get the thums up business also.

Corporate also get diversification exposure by making merger.

2.Characterize the different types of mergers.

Horizontal merger:

It means merging with companies who are into same business and same market, just to reduce the competition, corporates use this type.

Vertical merger :

It means merging with a company who is into producing different goods or services for one specific finished product.

For example

An auto manufacturer acquires auto anciliary company and then merge with it.

Market-extension merger:

Merge with the company who is into same business with into different market.

For example One company wants to expand from one state to another so it will apply this type of merger strategy.

Product-extension merger

It means merger between two companies that produces product that are related to each other and also operates into the same market.

For example : Brewage company acquires bottle manufacturer.

Conglomerate merger

In this merger companies acquire different business, because to exposure to diversification in doing business.

3. Identify the five major “merger waves” that have occurred in the United States.

The first Merger Wave was happened between the years of 1897 and 1907. During this period

1. Define the term merger, and list some motives for mergers.

Merger normally means a to merge two or more companies into one company.

Example Vodafone and Mannesmann, in this case vodafone first acquired this business and merged it into Vodafone.

Motives

Become leader in industry by acquiring your competitors.

Gain access into international markets.

By making merger we can get the Research and Development of that company.

Create new business : example coca cola entered india in late 1900 and it did not have bottling plant so later it acquired thums up parent company in brewies and bottling division and later merged so by getting bottling got coke it get the thums up business also.

Corporate also get diversification exposure by making merger.

2.Characterize the different types of mergers.

Horizontal merger:

It means merging with companies who are into same business and same market, just to reduce the competition, corporates use this type.

Vertical merger :

It means merging with a company who is into producing different goods or services for one specific finished product.

For example

An auto manufacturer acquires auto anciliary company and then merge with it.

Market-extension merger:

Merge with the company who is into same business with into different market.

For example One company wants to expand from one state to another so it will apply this type of merger strategy.

Product-extension merger

It means merger between two companies that produces product that are related to each other and also operates into the same market.

For example : Brewage company acquires bottle manufacturer.

Conglomerate merger

In this merger companies acquire different business, because to exposure to diversification in doing business.

3. Identify the five major “merger waves” that have occurred in the United States.

The first Merger Wave was happened between the years of 1897 to 1907. During this period majority mergers happened in petroleum products, metals, mining, transportation, and food products.

Monopoly was created and firms were charged by the justice department with violating the Sherman Antitrust Act (1890). Governments therefore intensified their vigilance and increased scrutiny on mergers

The second Merger Wave happened between years of 1916 to 1929 maximum verical merger happened.

It was already there Sherman Antitrust Act, federal authorities also used the Clayton Act (1914) against uncompetitive mergers

The third Merger Wave happened 1965 to 1969. optimistic growth phase for U.S. horizontal merger that happened during period were subject to antitrust law enforcement. Celler-Kefauver Act (1950) – which reaffirmed the Clayton and Sherman Acts) was the main theme for this period.

Fourth Merger Wave

This was happened during 1980s in leadership of Ronald reagan. It was the period of friendly merger and many biliion dollar mergers happened

Fifth Merger Wave

The Fifth Merger Wave happened between years of 1993 to 2000. Major mergers were cash based merger rather than debt funded.

4. Differentiate between the merger processes in hostile versus friendly takeovers.

Hostile : In this type agreement of board is not required it is forceful type of merger

Tender or direct offer is provided

Friendly takeover : In this type both corporations board and shareholder agrees on the decision.