Copyright © 2002 by Harcourt, Inc. All rights reserved. Topic 29 : Mergers and Takeovers By Zhu Wenzhong

Copyright © 2002 by Harcourt, Inc. All rights reserved.

Topic 29 :Topic 29 :

Mergers and TakeoversMergers and Takeovers

By Zhu Wenzhong By Zhu Wenzhong


• Explain the difference between mergers and Explain the difference between mergers and takeovers takeovers

• State the motives for merger or integration State the motives for merger or integration • Explain horizontal integration, forward vertical Explain horizontal integration, forward vertical

integration, backward vertical integration, lateral integration, backward vertical integration, lateral integration and diversification by giving some integration and diversification by giving some examplesexamples

• State hostile and friendly takeoversState hostile and friendly takeovers• Explain the difference between merger and joint Explain the difference between merger and joint

ventureventure

LEARNING GOALSLEARNING GOALSLEARNING GOALSLEARNING GOALS


Mergers and takeovers Mergers and takeovers Mergers and takeovers Mergers and takeovers

Merger:Merger: Two or more businesses join Two or more businesses join

together and operate as one together and operate as one organization with shared organization with shared management. management.

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Mergers and takeoversMergers and takeoversMergers and takeoversMergers and takeovers

Takeover:Takeover: One business acquires or controls One business acquires or controls

another in management through another in management through buying over 51% of the shares. buying over 51% of the shares.

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Motives of mergers and takeovers Motives of mergers and takeovers Motives of mergers and takeovers Motives of mergers and takeovers • Quick way of expansion Quick way of expansion • Cheaper than internal growthCheaper than internal growth• Costs saving by cross sellingCosts saving by cross selling• Cash available Cash available • Economy of scale Economy of scale • Consolidating market positionConsolidating market position• ControlControl• Globalization Globalization • Diversification Diversification • ……

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Types of merger or integration Types of merger or integration Types of merger or integration Types of merger or integration

• Figure Figure

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Backward vertical Previous stage of production

Types of integration

Forward vertical Next stage of production

•Lateral (similar)•Diversification (different)

HorizontalThe same stage of Production or the same line


Types of mergers and integration Types of mergers and integration Types of mergers and integration Types of mergers and integration

• Two or more firms Two or more firms which are exactly in which are exactly in the same line of the same line of business and the same business and the same stage of production stage of production join together. join together.

Horizontal integrationHorizontal integration


Types of mergers and integrationTypes of mergers and integrationTypes of mergers and integrationTypes of mergers and integration

• Two or more firms in Two or more firms in the different stage of the different stage of production join production join together. together.

• Backward Backward integration(merging with integration(merging with raw materials or raw materials or component firms component firms

• ForwardForward integration integration (distribution firms)(distribution firms)


Vertical integration Vertical integration


Types of mergers and integrationTypes of mergers and integrationTypes of mergers and integrationTypes of mergers and integration• Two or more firms with Two or more firms with

related goods which do related goods which do not completely compete not completely compete with each other join with each other join together. together.


Lateral integration Lateral integration

Vertical integrationVertical integration


Types of mergers and integrationTypes of mergers and integrationTypes of mergers and integrationTypes of mergers and integration• Two or more firms in Two or more firms in

completely different lines completely different lines of business join together.of business join together.

• Also called Also called conglomerate conglomerate merger merger


Diversification Diversification

Vertical integrationVertical integration

Lateral integration Lateral integration


Hostile and friendly takeovers Hostile and friendly takeovers Hostile and friendly takeovers Hostile and friendly takeovers

Hostile takeover :• The targeted company

tries to resist the bid.• The targeted firm may

take some measures to resist, such as asking another firm’ s bid, forming management team, or announcing new dividend plans, etc.

Friendly takeover :• The targeted company

is willing to be acquired or invite the bid.

• Reasons may include the firm has met with problems or it thinks it is better under the control of another.


Joint venture Joint venture Joint venture Joint venture

• Two or more companies share the costs, Two or more companies share the costs, responsibility and profits of a business responsibility and profits of a business venture or investment. venture or investment.

• AdvantagesAdvantages: enjoying growth of turnover with losing : enjoying growth of turnover with losing identify, way of eliminating direct competition, etc. identify, way of eliminating direct competition, etc.

• DisadvantagesDisadvantages: possible control struggle if 50:50 : possible control struggle if 50:50 ones, cultural conflicts or disagreement in ones, cultural conflicts or disagreement in management, etc. management, etc.

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Copyright © 2002 by Harcourt, Inc. All rights reserved. Topic 29 : Mergers and Takeovers By Zhu Wenzhong