10.

MERGERS AND TAKEOVERS

I. Are mergers and takeovers common in your country? Think of famous mergers and
takeovers that you consider interesting and express your reasons.

II. Watch the following dialogue between experts in M&A and categorise the sentences
as true or false:
1. Matt Simmons considers that size has always to do with quality.
2. According to Matt Simmons, the critical issue in M&A is represented by people.
3. According to John Gibson, the critical issue in M&A is represented by people.
4. According to John Gibson, a bad idea with good people is worse than a good idea with bad
people.
5. Neville Henry considers that most of the times, the M&A process excludes firing people.
6. David Johnson emphasizes the good communication existing between the merging parties
from the very beginning.
7. Matt Simmons argues that the aim is t build one culture out of two or three cultures.
8. According to John Olson, in the oil and gas industry, it is essential to make the information
about reserves transparent.
9. As regards reserves in any type of company, David Johnson and Tom Fry agree that the best
practice for having exact information about one company is to use internal auditors.
10. There is general disagreement that it is essential to rely on companies’ integrity.

III. Match the words or phrases with their corresponding definitions:

1. leveraged buyout a. joining together of the stock of two companies, so they
become part of the same company and former management
preserve their positions;
2. bid b. buying a majority of the shares in a company, and so
winning control over the company;
3. amalgamation c. a high-yield, speculative bond, often issued to finance the
takeover of a corporation
4. merger d. takeover of a company or controlling interest in a
company, using a significant amount of borrowed money.
Often the target company's assets serve as collateral for the
borrowed money.

5. buyout e. the combination of two or more commercial companies

6. junk bonds f. a special type of security such as life-assurance policy or
shares used to secure a bank loan;
7. collateral g. a situation where workers or management buy all the
equity (or more than 50%), or buy other assets, and so gain
control of a business;
8. takeover h. an offer to buy part of or all the share capital of a
company.

IV. Fill in the gaps with one of the words defined in the previous exercise:
In a market economy, it is quite common that smaller companies, with reduced financial means,
should be taken over by other bigger companies or that two or several companies should merge to
form a new company.

A ……1…….. means the purchasing of a company, either entirely, or at least of the controlling
percentage of its shares. In the case of small companies with limited assets, in order to make a
takeover ……2……, that company will have to borrow heavily to finance the takeover of a larger
company. For these, they might use both their own assets and the assets of the target company or
……..3…… as security or ……..4……. for getting the loan. Such a takeover is called a ……5……..

A takeover bid is an offer to buy made to the shareholders of the target company. The purpose of the
……6…… is to add that company to their portfolio and turn it into a subsidiary. The bid may be for
payment in cash made to the shareholders (cash bid) or for payment by shares of the company
making the bid. Sometimes the bid is considered acceptable by the board of the target company and
in this case it is said to be a welcome/ friendly takeover bid. In other instances it is considered
unfavourable by the board of the target company and then it is termed an unfriendly/ hostile. In the
latter case, a takeover battle ensues in which the bidder might offer better terms or another bidder
comes into the field.

A ……7….. is the unifying of the two or several companies into a new one with the purpose of
increasing efficiency, of doing away with competition. It is usually to the advantage of all parties
involved, hence it is considered amicable. All members of the former boards are offered almost
similar positions in the new board. Another term for this type of merger is ……8….. .

V. Which word or phrase from the documents above fits each of these definitions?
1. to receive something of value with the promise of giving something of (usually greater) value
at some point in the future;
2. people who own shares in a corporation or mutual fund and who have a right to declared
dividends and the right to vote on certain company matters;
3. a list of holdings in securities owned by an investor or an institution;
4. a branch of a company;
5. being the second of two mentioned;
6. to follow as a consequence or result;
7. someone who makes an offer;
8. to make an end of; eliminate;
9. something that related to the past;
10. an organized body of administrators, investigators, managers.

VI. Choose the correct answer:

1. A …..company or investment is one that can be trusted and is not likely to fail.
a. blue-chip; b. blue; c. trusting; d. blue-cheap.
2. …… involves buying a company cheaply, selling its assets separately at a profit.
a. asset-distribution; b. asset-taking; c. asset-stripping ; d. asset-selling.
3. A ……'s main purpose is to control another company through owning shares in it.
a. branch; b. holding company; c. subsidiary; d. subsidy.
4. A reason for acquisitions is synergy. Synergy includes:
a. revenue enhancements; b. cost reductions; c. lower taxes; d. all of the above.
5. Compensation paid to top management in the event of a takeover is called a:
 a. poison pill; b. golden parachute; c. salary; d. buyout.
6. A ………is when one company offers to buy another.
a. merger; b. takeover bid; c. leveraged buyout d. share.

VII. Complete the words below to match the given meanings:

1. to grow, to get bigger e--a-d
2. to stop activities that do not make r-t----l---
much money and to reduce the
number of staff
3. where one company is the only m---p---
supplier to a particular market
4. where a parent company sells a d-v--t-----
subsidiary (the opposite of 3 above)
5. a large group, owning and h-----g c-----y
controlling many companies
6. an illegal agreement between two c--t--
or more companies to fix high prices
7. fixing low prices until a p---- w--
competitor goes out of business
8. a de-merger, two companies b---k - u-
separate

(Business Magazine, 22 Dec. 2010 )