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Mergers and Acquisitions

Transcript: Risk Reduction Overconfidence Combination of Australia's leading consumer electronics and home appliances. Complementary customer profiles, product offerings and store location Attractive financial metrics with potential for meaningful synergies. The Good Guys hold a strong market position in the $4.6B home appliances category. Conflict of Interest The Australian Financial Review: Better than expected 11.5 per cent increase in net profit to $152.2 M Shares in JB Hi-Fi surged 9.9 per cent to a record $30.11, taking gains this year to 54 per cent. Article Summary Efficiency Gains Mergers and Acquisitions Earnings Growth Overconfident managers believe they are doing the right thing for their shareholders, but irrationally overestimate their own abilities Diversification Spread Risk Reasons to acquire Managerial motives to merge The Good Guys is a chain of consumer electronics retail stores in Australia and formerly New Zealand. Horizontal If the target and acquirer are from the same industry (JBHIFI) Vertical If target’s industry buys or sells to acquirer’s industry Conglomerate If the target and acquirer operates in unrelated industries Reasons to Acquire Debt Capacity and borrowing cost JB Hi-Fi Tax Savings The Good Guys Types of Mergers Larger, more diversified firms have a lower probability of bankruptcy give the same degree of leverage. Greater tax savings by increasing leverage further Why The Good Guys? Article Monopoly Gains An Australian and New Zealand retailer of consumer goods, specialising in: Video games CDs Electronics/hardware Home appliances. JB HiFi to acquire The Good Guys Losses in one division can be offset by profits in another divisions Jack Tan James Budney Lee Mei Xin Nikki Ang JB high5 Buy in Bulk Liquidity Increase earnings per share of the merged company The acquisition of The Good Guys is expected to lift earnings per share by 11.6 per cent • Like a large portfolio, large firms bear less idiosyncratic risk so mergers are justified on the basis that combined firm is less risky reduce competition within the industry JB Hi-Fi has recently announced that it is acquiring The Good Guys for $870 million Addition of 101 stores to JB Hi-Fi’s current network of 295 stores across both Australia and New Zealand Their collaboration will allow them to continue to dominate the market and amongst their competitors Reason for Acquisition • Managers may prefer to run a larger company due to the additional pay and prestige it brings Logistics Cost Merger activity is greatest during economic expansions Correlates with bull markets Main Competitors Cheaper capital Economics of Scale Promotion Costs Efficient production


Transcript: Rex Cheaper to acquire Economies of Large Scale Adequate and easy terms working capital Access to Resourceful Management Fresh Lease of Life Romesh Srinivas No systematic assessment of synergistic merits Lack of Matching Management Accumen Absence Serious Consideration of the Financial Stake Inadequate Familiarity of the Management Draw up a separate plan & program of merger Clarification and Re-alignment of Executives Create Effective M IS Bring About Complementary Merger Nature of Acquisitions Horizontal Merger Vertical Merger Circular Merger Conglomerate Merger Ronald Easy & Quick Entry Reduced Competition & Dependence Faster Rate of Growth Merits of Diversification Availing tax concession Benefits of Synergy Absence of stringent screening Inflated Synergies Over Pricing of Listed Securities Ways and Means of Financing Streamlining of Resources Reasons for Merging Why Merger Fails They form part of a well considered company development plan. The process of acquisition is unilateral. The structure of top management will have fewer problems. Contractual regulations are simpler and consist mainly of price & a no. of guarantee clauses. Time taken for an acquisition is shorter than for a merger How to make Acquisitions successful? Pre-Acquisition Steps: Screening Negotiation Post-Acquisition Steps Cleaning & Founding Strategic & Organisational Revival Integration of People and Operations Deepak Dimbarjit Types of Takeovers or Acquisitions MERGERS & ACQUISITIONS Why Acquisitions Fails? From the angle of Merged Firm How to make effective Mergers? Liquidation Strategy Future Growth Prospects Bringing in Balanced Growth Boon to small firms Golden Opportunity to family owned firm From the angle of Merging Firm Types of Mergers Amalgamations Acquisitions/Takeovers Sale of Assets Holding Company Acquisition Reasons for Acquisitions

Mergers And Acquisitions

Transcript: Phases of M & A Why M & A Fails ? Poor strategic fit - The two companies have strategies and objectives that are too different and they conflict with one another. Cultural and Social Differences - It has been said that most problems can be traced to "people problems." If the two companies have wide differences in cultures, then synergy values can be very elusive. cntd...... Incomplete and Inadequate Due Diligence - Due diligence is the "watchdog" within the M & A Process. If you fail to let the watchdog do his job, you are in for some serious problems within the M & A Process. Poorly Managed Integration - The integration of two companies requires a very high level of quality management. Integration is often poorly managed with little planning and design. As a result, implementation fails . Paying too Much - In today's merger frenzy world, it is not unusual for the acquiring company to pay a premium for the Target Company. Premiums are paid based on expectations of synergies. However, if synergies are not realized, then the premium paid to acquire the target is never recouped. Overly Optimistic - If the acquiring company is too optimistic in its projections about the target Company, then bad decisions will be made within the M & A Process. An overly optimistic forecast or conclusion about a critical issue can lead to a failed merger. THANKYOU Catagorization Conglomerate Every merger has its own unique reasons why the combining of two companies is a good business decision. The underlying Principle behind mergers and acquisitions ( M & A ) is simple: 2 + 2 = 5 Two firms are merged across similar products or services. Horizontal mergers are often used as a way for a company to increase its market share by merging with a competing company. For example, the merger between Exxon and Mobil will allow both companies a larger share of the oil and gas market. Bargain Purchase - It may be cheaper to acquire another company then to invest internally. Diversification - It may be necessary to smooth-out earnings and achieve more consistent long-term growth and profitability. Short Term Growth - Management may be under pressure to turnaround sluggish growth and profitability. Undervalued Target - The Target Company may be undervalued and thus, it represents a good investment. M&A defined Well for starters, mergers and acquisitions are now a normal way of life within the business world. In today's global, competitive environment, mergers are sometimes the only means for long-term survival. When we use the term "merger", we are referring to the merging of two companies where one new company will continue to exist. The term "acquisition" refers to the acquisition of assets by one company from another company. Positioning - Taking advantage of future opportunities that can be exploited when the two companies are combined. Gap Filling - One company may have a major weakness (such as poor distribution)whereas the other company has some significant strength. Organizational Competencies - Acquiring human resources and intellectual capital can help improve innovative thinking and development within the company. Broader Market Access - Acquiring a foreign company can give a company quick access to emerging global markets. Phase 5-Post Merger Integration If all goes well, the two companies will announce a agreement to merge the two companies. The deal is finalized in a formal merger and acquisition agreement. Every company is different - differences in culture, differences in information systems, differences in strategies, etc. As a result, the Post Merger Integration Phase is the most difficult phase within the M & A Process. Mergers and Acquisitions Two firms in completely different industries merge, such as a gas pipeline company merging with a high technology company. Conglomerates are usually used as a way to smooth out wide fluctuations in earnings and provide more consistency in long-term growth. Typically, companies in mature industries with poor prospects for growth will seek to diversify their businesses through mergers and acquisitions. Phase 1 - Pre Acquisition Review Phase 2 - Search & Screen Targets Phase 3 - Investigate & Value the Target Phase 4 - Acquire through Negotiation Phase 5 - Post Merger Integration Reasons for M & A Mergers and acquisitions represent the ultimate in change for a business. No other event is more difficult, challenging, or chaotic as a merger and acquisition. Hence it is imperative that everyone involved in the process has a clear understanding of how the process works. Two firms are merged along the value-chain, such as a manufacturer merging with a supplier. Vertical mergers are often used as a way to gain a competitive advantage within the marketplace. For example, Merck, a large manufacturer of pharmaceuticals, merged with Medco, a large distributor of pharmaceuticals, in order to gain an advantage in distributing its Products. By Ali Farhan Osama Butt Waleed Abdullah Shavaiz Arshad

Mergers and acquisitions

Transcript: Acquisition Definition of the Merger Acquisition Difference between merger and acquisition History: 1920- 2000 Affect the majority of developed countries Accelerated with globalization 3 types of integration : - Vertical integration - Horizontal integration - Lateral integration Fusions Acquisitions - Olivier Meier Guillaume Schier - DUNOD - Book Sources II) Mounting a merger-acquisitions The defensive strategic reasons Consolidate its position in mature sectors Adapting to technological development Hinder the actions of a competitor Limit entries on the sect a) Mergers and acquisition: external development The offensive strategic grounds Increased the power of domination Take a position in a new market or promising market Renew, regenate Conclusion Plan I) Mergers and acquisitions: form of development a) Mergers and acquisition: external development b) Goal II) Mounting a merger-acquisitions a)Phase, preparation and negotiation b)Integration phase and mistake to avoid III) Example of significant merger and acquisition b) Goal Examples of mistakes to avoid Mergers and acquisitions Introduction PSA Peugeot Citroen Microsoft Nokia Fusion Thank you for your attention ! Types of Mergers: 1) Horizontal Merger 2) Vertical Merger 3) Market Extension Merger 4) Product Extension Merger 5) Conglomeration Types of Takeovers: 1) Friendly Takeovers 2) Hostile Takeovers 3) Reverse Takeovers 4) Backflip Takeovers Search and target approach Defining the terms of the transaction Audit of the target Signing the final contract b) Integration phase and mistake to avoid a)Phase, preparation and negotiation I) Mergers and acquisitions: form of development III) Example of significant merger and acquisition

Mergers and Acquisitions Presentation:

Transcript: Mergers And Acquisitions Business Ed Presents History of Mergers and Aqcuisitions History of Mergers Waves of Mergers: First Wave: Period of horizontal mergers creating "Giants" Oil, Mining, Steel, etc. Second Wave: Creator of Oligopolies Food, Paper, Printing, and Iron Third Wave: Conglomerate Mergers Fourth Wave: Hostile Mergers capitalizing on inefficiencies from 3rd Wave Fifth Wave: Global Mega-Deals Waves of Mergers: 1893-Present Timeline: First Wave Second Wave Third Wave Fourth Wave Fifth Wave 1893-1904 1910-1929 1955-1975 1984-1989 1993-Present 1893-Present Largest Mergers To Date: 1. Vodafone and Mannesman ($180.95 Billion) 2. AOL and Time Warner ($164 Billion) 3. Verizon and Wireless Unit ($130 Billion) 4. Pfizer and Warner-Lambert ($90 Billion) 5. AT&T and BellSouth ($86 Billion) Largest Mergers To Date: Anti-Trust Law and Regulation: Sherman Antitrust Act Clayton Act HHI: Herfindahl Hirschman Index (Market Concentration) Glass-Steagal Act Investment and Consumer Bank separation Anti-Trust Law and Regulation: 1890-Present Calculated by squaring the market share of each firm competing in a market and summing the squares Range from 0 to 10,000 HHI of: less than 1,500 is considered competitive 1,500-2,500 moderately concentrated 2,500 or greater is highly concentrated HHI: Herfindahl Hirschman Index A market with two firms that both have 50% of the market: 50 + 50 = 5,000 Example: 2 2 Motives: Synergies Rapid Growth Market Power Diversification Motives: Tax Benefits International Goals Unlocking Hidden Value Bootstrapping EPS CVS & Aetna CVS & AETNA CVS and Aetna Proposed Merger U.S. pharmacy operator CVS Health Corp and No. 3 health insurer Aetna Inc. $200 a share or $66 billion Current stock price of Aetna: $175.12 Reordering of health-care market CVS and Aetna Proposed Merger Goals of CVS Focus on health care as retail sales shrink Improve negotiations with drug makers Set customer out-of-pocket costs for each drug Offer more benefits to clients Fortify itself against looming competition Goals of CVS Competition: Amazon Expectations that Amazon will enter the pharmacy business E-commerce Mail order prescriptions Received approval for wholesale pharmacy licenses Stock of CVS Health Corp. and Walgreens Boots Alliance Inc. have dropped sharply Competition: Amazon Future of the Merger Close scrutiny from US antitrust enforcers Merger between Walgreens and Rite Aid Revised plan to buy less stores Concerned about health-care consolidation Compete with Amazon Merger likely to take months of negotiations for approval Future of the Merger AT&T and Time Warner AT&T and Time Warner Background 10/22/2016: AT&T acqusition of Time Warner announced $85.4 billion deal; $107.50 per share; stock and cash transaction Deal currently valued at $109 billion Time Warner - Mass media & entertainment conglomerate 3rd largest entertainment company; own HBO, CNN & TBS AT&T - World's largest telecom company Consolidation of media and communications industry 2009 Comcast & NBC Universal Background Why Time Warner? Creative process -> Production of content -> Distribution -> Marketing Americans shifting entertainment consumption to mobile screens Streaming HBO Now would enable AT&T to get paid twice: 1st- Cellular data 2nd- Subscription revenue from HBO Better study customer content consumption New Costs = Never been involved in content production AT&T control distribution pipes AT&T control what goes through distribution pipes Why Time Warner? Deal Issues AT&T charging companies for rights to air on their network Could abuse power & force companies to accept unfavorable terms 11/8/2017: DOJ blocked the $109 billion acquisition Makan Delrahim: DOJ's new Assistant Attoney General DOJ gave AT&T two options (both involve selling off assets): 1- Turner Broadcasting division 2- DirecTV Randall Stephenson will not sell off either assets to complete deal Vertical integration distribution (wireless, broadband and satellite-TV) content (TV networks, HBO and films) Deal Issues AT&T Stock AT&T Stock Time Warner Stock Sprint & T-Mobile Sprint & T-Mobile US Wireless Market Background Four major wireless providers in the United States Verizon AT&T Sprint T-Mobile Industry regulated by the Federal Communications Commision (FCC) Grant spectrum liscenses Review mergers and acquistions in the telecommunications industry US Wireless Market Background Wireless Provider Consolidation Wireless provider market has been contracting since the breakup of AT&T in 1982 Verizon and AT&T are the last two remaining "Baby Bells" FCC declared that there is effective competition the first time in 8 years Wireless Provider Consolidation Sprint & T-Mobile Proposed Merger Sprint & T-Mobile announced a merger agreement in late October A Sprint & T-Mobile network would cover 87% of Americans Would be the third the largest wireless provider Looking to capitalize on positive subscriber momentum from unlimited data plans Sprint & T-Mobile Proposed Merger Merger Called

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