The completions and interests in Mergers and Acquisitions (M&A) is growing largely day by day (Michael A. Hitt, Jeffrey S. Harrison, R. Duane Ireland, 2001) During the recent recessions companies are looking into different ways to stay afloat, to grow and even continue to exist, and one of the best ways of doing this, is to merge or acquire another company (Dash, A, 2010) Lynch (cited in David Faulkner, Satu Teerikangas, Richard J. Joseph, 2012) also believes in some instances growth can take place within sector integrations which includes horizontal or vertical or even by going into a new sector by acquiring a new business, which is called diversification. A Merger or Acquisition takes place when two or more companies join …show more content…
2010). This is one of the reasons why its become increasingly concentrated over the past two decades ( Kumar, 2012). During the period between 1980’s and 1990’s this industry saw a considerable rise in mergers and acquisitions, with the growth alone, of the industry, rising 959 percent in stock index (Kaplan, 2000). Coyle (2000) tells us that a Merger and Acquisition (M & A) takes place when two or more companies combine all or part of their operations. But there are some differences between them; Paul and Richter (2009, p.35) defines a merger as “ a full joining together of two previously separated corporations. A true merger in the legal sense occurs when both businesses fold their assets and liabilities into a newly created third entity resulting in a new corporation” the authors also define an acquisition as “a direct purchase or through a merger that involves the exchange of assets”. Most of the M & As created in this industry is through horizontal mergers (Neirinckx, 2000) with this being shown in the merger between Glaxo Wellcome and Smithkilne Beecham, to create GlaxoSmithKline (Kumar, 2012). This merger took place in the year 2000 (GSK.com, 2014) with the deal costing $76 billion. After the merger occurred they held 7.3 percent of the global pharmaceutical market, with a combined value of £108billion ($177billion) (money.cnn.com, 2000) . The terms of the deal was described as a “merger of equals”. Glaxo Wellcome will have control of 58.75
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In this chapter, we first provide coverage of expansion through corporate takeovers and an overview of the consolidation process. Then we present the acquisition method of accounting for business combinations followed by limited coverage of the purchase method and pooling of interests provided in a separate sections.
Mergers and acquisitions have become a growing trend for companies to inorganically grow a business within its particular industry. There are many goals that companies may be looking to achieve by doing this, but the main reason is to guarantee long-term and profitable growth for their business. Companies have to keep up with a rapidly increasing global market and increased competition. With the struggle for competitive advantage becoming stronger and stronger, it is almost essential to achieve these mergers. Through research I will attempt to dissect the best practices for achieving merger success.
A merger is a partial or total combination of two separate business firms and forming of a new one. There are predominantly two kinds of mergers: partial and complete. Partial merger usually involves the combination of joint ventures and inter-corporate stock purchases. Complete mergers are results in blending of identities and the creation of a single succeeding firm. (Hicks, 2012, p 491). Mergers in the healthcare sector, particularly horizontal hospital mergers wherein two or more hospitals merge into a single corporation, are increasing both in frequency and importance. (Gaughan, 2002). This paper is an attempt to study the impact of the merger of two competing healthcare organization and will also attempt to propose appropriate
During the late 1950s and early 1960s, several large corporations began acquiring other companies to diversify their operations. Diversification allowed them to offset their losses in a failing industry with profits from other unrelated, successful industries. Such phenomena caused
Purpose: This paper analyzes mergers and acquisitions (M&A) focusing on the U.S. pharmaceutical industry in the period 1981-2004. This industry is chosen because it is global, engages intensively in M&A which it uses to both complement and substitute for early stage research, and because the potential abnormal returns to blockbuster drugs are substantial. It is our assumption that if abnormal returns to M&A exist in the short and long run, this is the industry to find them.
Mergers and acquisitions can be classified in terms of the direction of the growth. A horizontal merger/takeover is the combining of two firms in the same stage of production, for example Well come Pharmaceuticals merged with Glaxo Pharmaceuticals. This sort of integration takes place to combat competition from the market and secure market domination; to reduce risks and increase financial strength; and to compete in
A "merger" or "merger of equals" is often financed by an all stock deal (a stock swap). An all stock deal occurs when all of the owners of the outstanding stock of either company get the same amount (in value) of stock in the new combined company. A merger adds value only if the two companies are worth more together than apart (Wikipedia, Free Encyclopedia, 2006).
The largest single driving force behind mergers and acquisitions is probably economies of scale. Economies of scale means that if you have a large company, you can leverage your suppliers. This is a very powerful capability, and exercising it can be a strategic move for a company’s operations. You can save a tremendous amount of money on services such as health insurance — we all know that health insurance is extraordinarily expensive and getting more so every day. I know about the strategic benefits of economies of scale from my personal experience of working as a consultant in a small merger and acquisition in 2006 in which two failing private schools joined together to become one successful entity. One of the major contributing factors for the success of this merger was that the combined organization had more people who were buying health insurance; as a result, the health insurance company substantially dropped their premiums because the risk was being spread across more people. Large companies can also buy basic supplies such as paper, pencils, and paperclips less expensively from suppliers when they buy in larger quantities. They simply get a
Mergers and Acquisitions (M&A) are an established form of expansion for medium to large size companies, with the intention of creating more value by for example increasing competitiveness and transferring technology and innovation. In other words, it is assumed that “the combined company will have greater value than the two companies alone” (Marks & Mirvis, 1992, p. 69), It can even be argued that, with the globalization of business, M&As are needed to keep up (Hitt, Franklin & Zhu, 2006). Unfortunately, the failure rate in M&As is extremely high with 70% of worldwide M&A failing to increase stakeholder value (Mohibullah, 2009) and over 90% of European M&A failing to reach financial objectives (Hay Group. 2007). Although there may be many different reasons for an M&A not succeeding, failure is most often attributed to the incompatibility of the two (corporate) cultures (Uljin, Duyster & Fevre, 2010). In the last couple of decades, M&A has switched from being mostly a domestic phenomenon to an international phenomenon, initially caused by the integration of the European Union in the 90s, followed by a rise in “the international expansion of emerging market multinationals … be it by Chinese or Indian firms” (Reynolds & Teerikangas, 2016, p. 42), adding a new dimension to the cultural differences; national cultures. Consequently, with this rise in the number of cross-border M&A also came an increased interest in the effect of national cultural differences between
Pitching an M&A deal to shareholders is much easier for companies than organic growth, which not only increase operating costs, but also requires more time and resources to result in profitability. 2007 was the record year for M&A deals with an estimate volume of $4.2 trillion until this record was beaten last year. 2015 became the biggest year on record for M&A with an estimated $5 trillion in deals, which is more than the GDP of Australia, Mexico and India combined. Major deals were struck across a wide range of industries, most notably in technology, telecommunications and healthcare. This report discusses what is driving this aggressive growth by companies through M&A, a highlight 2015’s biggest deal and predicts what M&A
Pharmaceutical industry is currently going through a phase of mergers and acquisitions. There are many underlying reasons for this 'now-accelerated' practice in the industry. Expiry of patents for blockbuster drugs, increasing costs of R&D, marketing, and federal drug development regulations, and increased rivalry within existing markets players has led largest players of the industry to consolidate by acquiring smaller firms. One recent instance in which an internationally operating pharmaceutical firm acquired a growing local firm of the U.S pharmaceutical industry was the acquisition deal between Merck & Co, Inc. and Inspire Pharmaceuticals, Inc. Inspire was the target company in this deal that cost $420 million to Merck. The offer was made Merck in 2011 after Inspire failed to pass clinical drug test for its cystic fibrosis treatment drug.
However, merger execution requires significant investments and businesses must know exactly what they want to achieve from mergers.
25 The Procedures Of Mergers 30 Determination of the Value of a Firm 33 Terms of Mergers 35 Quantitative Factors Affecting Merger Terms 35 Merger Waves 37 CHAPTER THREE: METHODOLOGY 41 Introduction 41 Background of the Companies 41 Study Design