Takeovers and mergers

When starting a business, or running it for a long time, you should expect that the structure of the company won’t be the same forever.

There are a lot of tendencies, ways of its development & there is such a phenomena as takeovers & mergers.

When a company wants to introduce new products & services there are two options for it do it.

Large companies have the choice of innovating – developing new products, services or market themselves – or of buying another, smaller company with successful products.

If the other company is too big to acquire, another possibility is to merge or amalgamate with it.

Another reasons for taking over or combining with other companies include reinforcing your company’s position, reducing competition, diversifying production, as well as rationalizing the use of a plant or invested capital, & also searching for synergy (that means the belief that together the companies will produce more than the sum of the two separate parts).

A company that wants to grow or diversify can launch a raid- in other words, simply buy a large quantity of another company’s shares on the stock exchange.

Usually the aim is to persuade enough other shareholders to sell to take control of the company.

A friendly takeover has the consent of the directors of the company whose shares are being acquired; a hostile takeover bid is one undertaken against the wishes of the Board of directors.

Defenses against a hostile takeover include the poison pill –  a defensive action taken to repel a raider, such as changing the share voting structure or the Board of directors, or spending all the company’s cash reserves.

There are different ways of merging.

It can be a horizontal integration when a company takes over other firms producing the same type of goods or services.

A vertical integration is a company’s acquisition of either its suppliers or its marketing outlets

There are a lot of arguing in favour & against mergers & integration.

Those who like this idea say that a large company will have a stronger position on the market, while entering new markets with new brands is generally slow, risky & expensive.

They believe that innovation is more expensive than acquiring or merging with other successful innovative firms, that it’s a good way for a company to reduce competition.

But there are a lot of arguments against mergers.

Among them there are such thoughts as conglomerates may become unmanageable & fail to achieve synergy, diversification may dilute a company’s shared values, it’s argued that a company’s optimum market share is rarely very large.

One more indication that the people who warn against takeovers might be right is the existence of leveraged buyouts (LBOs).

Problems such as these explain why merged companies so often fail to live up to the promise of the day of the press conference when the two CEOs vaunted the merger’s metits.