Definitions
A merger is a combination of two or more corporations in which only one corporation survives and the merged corporations go out of business. Statutory merger is a merger where the acquiring company assumes the assets and the liabilities of the merged companies A subsidiary merger is a merger of two companies where the target company becomes a subsidiary or part of a subsidiary of the parent company
Acquisitions
one firm buys another firm
the words are often used interchangeably even though they mean something very different
Acquisitions
can be a controlling share, a majority, or all of the target firms stock can be friendly or hostile usually done through a tender offer
Types of Mergers
Horizontal Mergers - between competing companies Vertical Mergers - Between buyer-seller relation-ship companies Conglomerate Mergers - Neither competitors nor buyer-seller relationship
Horizontal Merger
A merger occurring between companies in the same industry. Horizontal merger is a business consolidation that occurs between firms who operate in the same space, often as competitors offering the same good or service. Examples:- The biggest M & A deal was done by Reliance Communication which merged its telecoms tower business with GTL infrastructure Ltd for USD 11 billion. Bharti Airtel acquired Kuwait based Zain Telecom's
Vertical Mergers
A merger between two companies producing different goods or services for one specific finished product. A vertical merger occurs when two or more firms, operating at different levels within an industry's supply chain, merge operations. Example:-An example of a vertical merger is a car manufacturer purchasing a tire company. Such a vertical merger would reduce the cost of tires for the automaker and potentially expand business to supply tires to competing automakers.
Conglomerate Mergers
A conglomerate merger is officially defined as being "any merger that is not horizontal or vertical; in general, it is the combination of firms in different industries or firms operating in different geographic areas".
Managerial Hubris
proposed M&A activity may satisfy the logic of corporate level strategy
managers may see economies that the market cant see
Summary
M&A activity is a mode of entry for vertical integration and diversification strategies A firms M&A strategy should satisfy the logic of corporate level strategy M&A activity can create economic value at announcement, but target firms usually capture that value M&A activity can create value over the long term for the acquiring firm