...INDUSTRIAL ECONOMICS ASSIGNMENT HORIZONTAL MERGERS AND MERGER POLICY MERGERS and takeovers involve the amalgamation of two or more independent firms under common control and are typically divided into: 1. Horizontal mergers 2. Vertical mergers 3. Conglomerate mergers HORIZONTAL MERGERS WILLIAMSON’S FRAMEWORK: • The issue of appropriate public policy to deal with horizontal mergers is discussed below in a frame described by Williamson. • If a horizontal merger simply has the effect of increasing the market power of the merged firms, enabling them to raise prices and profits, then a prima facie case against the merger exists. • Williamson in particular focuses attention on economies or real cost savings as a defense of horizontal mergers. [pic] (fig.1) • Assume for simplicity a competitive market with constant costs, AC1, and a market demand curve, D, as shown in the figure. • In a competitive equilibrium, price is equal to marginal and unit cost, p1, and competitive output is x1. • Assume that a series of mergers now takes place giving rise to real cost savings which reduce costs to AC2. • Such costs may arise, for example, from rationalization of production and the exploitation of economies of scale. • If the merged firms continue to charge price p1 or below then consumers are no worse off and...
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...In a general sense, mergers and takeovers (or acquisitions) are very similar corporate actions - they combine two previously separate firms into a single legal entity. Significant operational advantages can be obtained when two firms are combined and, in fact, the goal of most mergers and acquisitions is to improve company performance and shareholder value over the long-term. The motivation to pursue a merger or acquisition can be considerable; a company that combines itself with another can experience boosted economies of scale, greater sales revenue and market share in its market, broadened diversification and increased tax efficiency. However, the underlying business rationale and financing methodology for mergers and takeovers are substantially different. A merger involves the mutual decision of two companies to combine and become one entity; it can be seen as a decision made by two "equals". The combined business, through structural and operational advantages secured by the merger, can cut costs and increase profits, boosting shareholder values for both groups of shareholders. A typical merger, in other words, involves two relatively equal companies, which combine to become one legal entity with the goal of producing a company that is worth more than the sum of its parts. In a merger of two corporations, the shareholders usually have their shares in the old company exchanged for an equal number of shares in the merged entity. For example, back in 1998, American Automaker...
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...Firstly the benchmark for a failed merger must be set. The one most commonly used it whether the share price of the firm rose in comparison to an industry specific average, or whether it fell. However tis only considers the financial success of the deal, and neglects its strategic and social impact. The merger may have met the majority of its objectives (e.g. A reduction in real cost, improved position within the industry for future growth), but there was no increase in shareholder wealth, maybe because the assets were overpriced. Indeed in the first few years after a merger or acquisition out-performing the other, more established, firms in the industry can be difficult. Currently almost all studies dealing with the failure and success of mergers have focussed on the shareholder value in the short term. REF. Indeed the few studies that have analysed the long term implications propose that if the mergers are well selected and well planned the business capability of the brand can be increased. Maybe instead of considering the financial failure of a takeover, the societal success should be looked into. If the merger reduces the resources needed increases the range of products available and offers better quality products, the in terms of the consumer is this not a success? There are, broadly speaking, two main areas which can cause a merger to fail. The first is improper managing and strategy, and the second is cultural differences between the two firms. If both are will though...
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...Individual research objective Recently, there has been a lot of news about companies’ combination deals. Especially, in the telecommunication sector, mergers are the trend of the moment. M&A deals grab headlines, but what does this all mean to investors? This individual research tries to figure out the effects of mergers and acquisitions and what happens to the stock price when a company is bought out. Definition The terms of merger and acquisition mean slightly different things. Merger When two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated, mergers happen. Usually mergers occur in a friendly setting where executives from the respective companies participate in and try to ensure a successful combination of all parts. Mergers are often financed by an all stock deal (a stock swap). An all stock deal occurs when all of the owners of the outstanding stock of either company get the same amount (in value) of stock in the new combined company. Acquisition When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. Unlike mergers, acquisitions happen through a hostile takeover by purchasing the majority of outstanding shares of a company in the open market. Acquisitions can be carried out in a number of ways, including exchanging cash, stock, debt, or combinations thereof. In an acquisition, shares of the acquiring company continue...
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...Business Course Code: IB-522 Term Paper on ―Merger of Equals of LafargeHolcim Cement Limited‖ Prepared by Asmina Akter; ID-35 Mohoan Chowdhury; ID-46 S. M. Yusuf Mallick; ID-71 Md. Harun-Ur-Rashid; ID-73 Supervisor Suborna Barua Assistant Professor Department of International Business University of Dhaka Date of Submission: 01.07.15 1|Page Letter of Transmittal 1st July, 2015 The Course Instructor Suborna Barua Department of International Business University of Dhaka Subject: An application for acceptance a term paper on “Merger of Equal of LafargeHolcim Cement Limited” Dear Sir, It is a great pleasure to submit you a term paper on ―Merger of Equal of LafargeHolcim Cement LTD‖. This paper is prepared to learn the motives, process, integration and result of merger of Lafarge and Holcim two giant cement company. We request you to excuse us for any mistake that may occur in the paper despite of our best effort. We believe that you will view all mistakes with your generous consideration. Yours sincerely Asmina Akter, ID-35 Mohoan Chowdhury; ID-46 S. M. Yusuf Mallick; ID-71 Md. Harun-Ur-Rashid; ID-73 Department of International Business (MBA 7th Batch) University of Dhaka 2|Page Executive Summary Corporate restructuring is becoming popular day by day and merger and acquisitions are being considered as the big steps towards corporate restructuring. Being a part of strategic issues, merger and acquisitions are subject to lots of...
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...FAIRNESS OPINIONS IN MERGERS AND ACQUISITIONS Anil K. Makhija* The Ohio State University Rajesh P. Narayanan Ohio University April 11, 2007 ____________________________________________________________ __________________ Abstract Fairness opinions provided by investment banks advising on mergers and acquisitions have been criticized for being conflicted in aiding bankers further their goal of completing the deal as opposed to aiding boards (and shareholders) by providing an honest appraisal of deal value. We find empirical support for this criticism. We find that shareholders on both sides of the deal, aware of the conflict of interest facing advisors, rationally discount deals where advisors provide fairness opinions. The reputation of the advisor serves to mitigate this discount, while the contingent nature of advisory fees appears to have no impact. We also find support for allegations that fairness opinions are sought by boards for the legal cover they provide against shareholders unhappy with the deal’s terms. JEL Classification: G34, G24 Keywords: Fairness Opinions, Mergers and Acquisitions, Investment Banking ____________________________________________________________ __________________ *Corresponding author: Anil K. Makhija, 700 E. Fisher Hall, Fisher College of Business, The Ohio State University, Columbus, OH 43210. Tel: (614) 292-1899. E-Mail: Makhija.1@osu.edu. We are grateful for comments from Angie Low, Brian Nocco, Robert Rosholt, and René Stulz,...
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...Contents 1. Evaluate the rationale for the merger................................................................................. 1 2. Relative merits of a merger and an acquisition ................................................................. 2 3. Present value of the gains from merger and costs of capital.............................................. 4 4. Exchange ratio for the shares ............................................................................................ 6 5. Reference list...................................................................................................................... 8 Tables Table 1: Cash-flows................................................................................................................ 6 Table 2: Discounted cash-flows ............................................................................................. 6 Table 3: Banks strengths in comparison................................................................................. 7 1. Evaluate the rationale for the merger After a period of record number of bank failures during the 1980s, the Banking Industry entered a period of record profits in the 1990s. Also the industry saw a large number of bank mergers that pointed out a new trend, leading to more concentrated and bigger banks holding a majority of total banks assets. Following this trend a Chemical/Chase merger became attractive. By accomplishing this merger Chase Manhattan would grow to the largest...
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...model The deal to a merger between two of the giants are remarkable achievement. There are no cultural differences. "Although the integration of the team spent after the merger of DaimlerChrysler, several million dollars has work on cultural sensitivity seminars for their staff on topics such as sexual harassment in the American and German restaurants etiquette, larger errors in business practice and management settings remain unchanged. So both brands could contain preserved different cultural class: • James Holden, the President of Chrysler from September 1999 to November 2000 described what he saw as "married up, marry down" phenomenon. "Mercedes, perceived as a fantasy, a particular brand, and Chrysler, Dodge, Plymouth and...
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...InterClean will be merged with EnviroTech in 90 to 180 days. The merger will occur as the industry responds to changes in the governing environmental safety standards. The merger will create more work for the clients and create new opportunities for InterClean. This new venture will help to expand the company both domestically and worldwide; the potential for growth and strategic advantage is significant. This is an exciting and sensitive time for the company and must be approached in a delicate and professional manner. The memo will first outline and explain how a manager’s behavior can impact the productivity of his or her workers. Next, it will address the types of management actions that are in line with employment laws and those that are not. Lastly, the memo will describe some best practices for working within a diverse work environment. In sales, manager positions are vital roles. The examples below are given to managers as the know-how to which behaviors can impact the productivity of their workers. • Express fairness in order to retain employees. • Reward employees based on their job performance. • Maintain a safe, healthy working environment. • Show support and respect for the work that employees do everyday. • Maintain a professional and positive attitude will help reassure the employees that the company will act in their best interest. • Ensure a satisfying working atmosphere exists for both employees and management. • Ensure employees are safe...
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...Journal of Industrial Organization Education Volume 5, Issue 1 2010 Article 1 United-Continental Merger Robert J. Carbaugh, Central Washington University Koushik Ghosh, Central Washington University Recommended Citation: Carbaugh, Robert J. and Ghosh, Koushik (2010) "United-Continental Merger," Journal of Industrial Organization Education: Vol. 5: Iss. 1, Article 1. DOI: 10.2202/1935-5041.1034 Unauthenticated | 62.189.189.132 Download Date | 6/6/13 12:08 PM United-Continental Merger Robert J. Carbaugh and Koushik Ghosh Abstract This case study discusses the nature and likely effects of the proposed merger between United and Continental. It is intended as a lecture for instructors teaching undergraduate courses in Industrial Organization or Antitrust Economics KEYWORDS: United, Continental, Merger, Antitrust Unauthenticated | 62.189.189.132 Download Date | 6/6/13 12:08 PM Carbaugh and Ghosh: United-Continental Merger United-Continental Merger On May 2, 2010, the Boards of Directors at United Airlines and Continental Airlines approved a stock-swap deal that will combine them into the world’s largest airline. The combined carrier will have 21 percent of domestic flying capacity, taking the lead from Delta Air Lines, which will lose what had been its leading 20 percent share of the domestic market. The deal still needs final approval from the U.S. Department of Justice and shareholders before being allowed to go forward. The firms hope to complete...
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...Glencore Xstrata: merge of equals | Mergers & Acquisitions | | Kirill Danilov IMBA April 2012 IE Business School | 1. Merger Rationale/Strategic Reasoning of the Transaction A soon merger between world biggest commodity trader Glencore and global leading mining company Xstrata will create new vertically integrated company with business value $90 billion. This deal will allow to created natural resources giant to become a fourth biggest one in the industry and cover full range of activities (from exploration to sales) in a value chain. Such companies’ fusion will create a perfect opportunity for shareholders’ value creation. However, there is significant number of factors and issues that should be considered and controlled during and after deal process to make this merger really successful. 1.1. Glencore Overview Glencore is a major worldwide producer and marketer of commodities. It operates in more than 40 countries and employs over 60 000 people. With headquarter located in Baar, Switzerland, Glencore is involved in such activities as production, sourcing, processing, refining, transporting, storage, financing and supply of natural resources. The company operates in three main industries: metals and minerals, energy products and agricultural products. It has as own production assets as sources them from other suppliers. Main customers of Glencore operate in oil and gas, power generation, steel production, food processing and automotive industries...
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...The merger between Chrysler, the smallest yet most efficient US auto maker with Daimler’s legendary Mercedes-Benz was supposed to be a match made in Heaven. However, Chrysler’s management expectations were quickly erased as CEO Juergen Schrempp of Daimler never intended equality in running the new acquisition. Within the first year, it became apparent that Chrysler had become a division of Daimler - a point Schrempp verified in interviews with the media. Schrempp’s attempts at boosting Chrysler’s sales had flopped; the company experienced huge losses and Schrempp began to send his orders though his German assistant Deiter Zetsche, who was at least able to make some positive progress. However, with no input from Chrysler executives once again, Schrempp made another huge deal by acquiring 34% of Mistubishi Motors, which had been losing money as well. Schrempp also refused to meet with the 3rd largest holder of Daimler/Chrysler stock Kirk Kokorain to explain how he intended to turn the company around, most likely as a result of a clash of cultures, different nationalities, the German focus on hierarchy, or. order and planning. No turnarounds had been made and in 2006, Chrysler posted a 3rd quarter loss of $1.5 billion and it became apparent that Daimler would sell off Chrysler. The merger was over. The underlying intentions of Jurgen Schrempp to never accept the Chrysler merger as an equal should be considered unethical because of his attempts to take advantage of a smaller company...
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...during the process of M&A Mergers and acquisitions provide a great opportunity for growth to the organizations. Together the companies can strive for growth and higher profits using smaller amount of resources. However, it is not easily implemented and many factors should be taken in consideration in order for the merger to be beneficial and successful. Studies show different numbers, but according to Harvard Business Review, 70 to 90% of mergers fail and therefore companies incur losses. There are many wrong business decisions that managers can make during this process, but this paper will be focused on internal communication practices that contribute to the failure of a merger or acquisition and give some techniques that will help to communicate successfully. Many organizations ignore the people element in the formation of a new organization. Managers are concerned about the profits and new business strategies and often forget about the fact that employees are the key to the overall success and that the achievement of the business goals depends on every single employee. So therefore, it is essential to keep them motivated and engaged in the new environment. So, what can go wrong and how to make it right? • Merger or acquisition? The abbreviation M&A does not distinguish the difference between the two components: M and A. It implies that both of them are the same. In fact, the two components are completely different in their nature. Merger means that two companies will...
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...MarketLine Case Study Glencore & Xstrata Creating the fourth largest global mining company Reference Code: ML00007-065 Publication Date: January 2013 WWW.MARKETLINE.COM MARKETLINE. THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED GLENCORE & XSTRATA: CREATING THE FOURTH LARGEST GLOBAL MINING COMPANY © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED ML00007-065 /Published 01/2013 Page | 1 OVERVIEW Catalyst Glencore International, a commodity trading giant, is seeking to merge with diversified mining company Xstrata. The move was announced in February 2012 with the proposal accepted by shareholders in November 2012. The deal is worth $31bn and would create the fourth largest mining company in the world behind the top three of BHP Billiton, Vale, and Rio Tinto. The company would also possess leading positions in other commodities in power generation and agricultural products. Summary Glencore is a company which operates in commodity markets, including mining. The company engages in both industrial activity and marketing, which allows it to safeguard against volatilities in an individual market. Further, by engaging in marketing, the company is able to adapt more effectively to adverse conditions. Glencore has demonstrated value creation in its acquisitions, with notable acquisitions including Kazzinc and Viterra. The company’s size also now allows it to negotiate big contracts, as it did with Rusal. Glencore was...
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...Utah Symphony and Utah Opera: A Merger Proposal There is a major discussion underway on the proposed merger of the Utah Symphony and the Utah Opera. Mergers in the arts are rare, and nonetheless, risky, therefore all parties are going through thorough discussions process before coming to a final decision. A merger of this sort is unfamiliar, therefore gaining support of the merger has been difficult. It is important to consider all parties and their concerns equally, and implement motivational methods and/or organizational tactics to gain support for the proposed merger. For members and supporters of the Utah Opera, the lack of support of the merger is rooted in the organization’s current good standing. The Utah Opera is financially stable, and is growing thanks to Ewers efforts leading the organization. With this in mind, the people are skeptic of taking the risk of jeopardizing their good standing, and also their identity in the arts. To address the concerns related to the Utah Opera’s financial stability, and what may be compromised with the merger, Bill Bailey, the chairman of the Utah Opera, may benefit from using McClelland’s need for achievement theory to improve the public’s attitude toward the merger. Although the Opera is in good standing, there is still so much opportunity for growth for their organization. This merger may be an opportunity for the Utah Opera to become a top tier organization in the arts, and reach equal recognition to the Utah Symphony. Rather...
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