Examples of Mergers & Acquisitions
Mergers and acquisitions (M&A) is one of the main part of the corporate finance world. The aim is to create a bigger company by taking at least two separates companies. Deals can be worth millions of dollars, even billion sometimes (such as the merger between Microsoft and Yahoo! for approximately $44.6 billion).
We often say that the perfect equation for a merger or an acquisition is one plus one makes three. The key principle behind buying a company is to create more value for the shareholders. Two companies together are normally stronger than two companies separate. Both bring its know-how, experience, culture and so on.
There are different reasons why two companies decide to merger or to make an acquisition. It could be because they want to create a more competitive, cost-efficient company, to reduce their costs, for economies of scale reasons as well. Sometimes they know that they can complementary, meaning by merging they can take advantage of both know-how and create a better product because only one company cannot make it by its own.
It is important also, before giving some examples of merger and acquisition to make the distinction between what is a merger and an acquisition.
An acquisition it is when one company takes over another and clearly established itself as the new owner. For example Google's largest acquisition as of March 2008 is the purchase of DoubleClik which is an advertising company.
A merger it is when two companies which most of the time have the same size, agree to go forward as a single new company rather than remain separately owned and operated. For example the merger between Clear Channel and Thomas H. Lee Partners.
In this pre-seminar paper we will analyse five mergers and acquisitions. Google - DoubleClick, BP - Amoco, Rentokil - BET, Air-France - Alitalia, GDF-Suez. ()
[...] The results We cannot see them by now. Nevertheless, synergies would normally reach 1 billion Prospects are rather positive because the market is by now relatively stable, and the management seems to be efficient : the structure is logical and there is a good combination of the public and the private sectors. I would probably have invested in that merger because it seems that the synergies will help to increase growth and profitability. The merger seems to be fair for both parts (21 GDF shares and 22 SUEZ shares.) It is one of the major capitalizations of the CAC 40 and thus a big actor in its sector. [...]
[...] The group has made a year sale growth of almost the net income has increased by from last year, it employs 97,000 employees worldwide. The company is by 60% held by BP shareholders and 40% by Amoco ones and is worth $ 110 billion. Now, the activities of the group are oil, gas, and chemical and solar operations. I would have invested in that company because the new group is the one of the most important oil firm on the whole world. [...]
[...] The merger Rentokil has taken over BET (British Electric Traction) in 1996, which was one of its competitors. The newly made group has taken the name of Rentokil Initial. BET was specialized in helping services like cleaning, cookery. So their activities were quite complementary. The drivers were the diversification because each one benefit from the other’s experience and knowledge in another field of activity. Rentokil is now able to offer its extended services to a wider target. They both wanted to expand to new markets and make better profits. [...]
[...] Thanks to this acquisition, Google take another step compared to its competitors. They will acquire more companies in the following years as a Google objective is to remain number 1 search-engine. 2ND example: BP / Amoco British Petroleum was established at the beginning of the 20th century. It has then gone private in 1976. Throughout the years, the company ahs evolved and bought other firms to increase its power onto different markets. The merger with Amoco has been a real turning point in 2001. [...]
[...] The main goal of this acquisition is to avoid the bankruptcy of Alitalia. We notice that people are buying shares by now, however the deal has not been made yet. It is because the stock price is still down and they expect it to rapidly increase in the next few months. 5th example GDF / Suez GDF was the third European Gas company and employed workers, whereas Suez was the fifth European Electricity company and employed workers. The turnover of 2006 of Suez is the double of GDF’s. [...]