Mergers & Takeovers

Mergers

Mergers are the joining of two companies who have decided that they would be a stronger company if combined than being standalones. The merging of the companies is a friendly decision between two 'equals'. 

The combination of two businesses can be a benefit as it can cut costs and increase profits, boosting the shareholder values for both corresponding businesses. In other words, a standard and typical merger involves two equal companies combining to become one legal entity aiming to produce one company that is worth more than the sum of it's individual parts.

An example of this would be the merging of Comcast and NBCUniversal in 2009. Comcast paid $6.5 billion to General Electric for a 51% stake in NBCUniversal, leaving GE with 49%. The deal was made under the negotiation that states Comcast must contribute $7.5 billion in programming that included regional sports networks and cable channels such as Golf Channel, Versus and E! Entertainment. 

Under the deal terms, Comcast reserves the right to buy out GE's share at certain times, and General Electric reserves the right to force their stake into sale within the first seven years of their contract.

In March 2011, Comcast completed the deal with General Electric, buying out the remaining 49% of the company.

Merger activity is an example of integration taking place within industries. It can either be Vertical Integration of Horizontal Integration, which will be explained in my next post.

Takeovers

A takeover, or acquisition, is the act of a larger company buying a smaller one as they aren't 'equal'. In the event of a hostile takeover, there is usually a change in the board of directors and senior management. a friendly takeover tends to leave the management in tact causing a benefit to the target company. 

In a hostile takeover, the larger company will go directly to the smaller company's shareholders in order to reach a takeover agreement rather than going to their management board first, or they can fight to replace the current management in order to have the acquisition approved. This type of takeover can be accomplished either through a tender offer or a proxy fight. 

Overall, the company's management does not want to deal to succeed. 

A friendly takeover is a lot different as the smaller company's management and board of directors agree to the merger or acquisition by another company.