Mergers and Acquisitions

Mergers and Acquisitions

Fin 444: Mergers, Acquisitions, and Corporate Restructuring

Mergers and acquisitions (M&As) can be a useful tool as corporations pursue established strategy and goals. As corporations define and redefine strategic plans, in-house commercial capabilities may be found wanting. A company can either develop these capabilities from the ground up, or look around for an established company that has experience and success in the endeavor. It is the ability to participate quickly that is at the heart of the popularity of mergers and acquisitions. The forms of the transactions may change, but the result is the same; quicker alignment of functionality with the strategic plan.

M&As defined

A merger is a transaction that forms one economic entity from two or more entities. A horizontal merger specifically is one that combines companies that offer very similar goods and/or services. In contrast, a vertical merger is one that includes companies that offer different parts of what is seen as a supply chain; for example, a retailer that purchases a transportation company. Spin-offs are the creation of an independent company that begins with the sale or distribution of new shares of an existing business (or division of a parent company). Spin-offs are considered a form of divestiture. Leveraged buyouts involve acquiring another company using a significant amount of borrowed money to fund the transaction. Often, the assets of the company being acquired are used (in part) as collateral for the debt incurred. Finally, divestitures involve the full or partial disposal of an asset (company) through sale, exchange, or closure. The most common divestitures are sales, though closures of consistently unprofitable divisions by a parent company are not uncommon.

Merger Types

Although not a classic example of a horizontal merger, the proposed purchase of NBC Universal by Comcast most closely resembles a horizontal merger. Universal Studios and...