PROJECT REPORT ON

INTRODUCTION OF MERGER AND

ACQUISITION
MASTER OF MANAGEMENT STUDIES

SEMESTER II

2015-2016

IN PARTIAL FULLFILLMENT OF REQUIREMENT FOR THE

AWARD OF DEGREE OF MASTER OF MANAGEMENT
STUDIES

SUBJECT MERGER &ACQUISITION

KHAN ABDUL HAFEEZ ALI AZAM-22015011

UNDER THE GUIDANCEE OF

PROF. MR. BHOJRAJ SHEWALE

SHIVAJIRAO S. JONDHLE INSTITUTE OF MANAGEMENT

SCIENCE & RESEARCH, ASANGAON.
 UNIVERSITY OF MUMBAI

ACKNOWLEDGEMENT

It gives me immense pleasure to present the

report on the topic External & Industry Analysis in
partial fulfilment of the requirement for the award of
the degree of Master In Management Studies(MMS)

I am heartily thankful to my mentor prof. PROF.

VINOD REVDEKAR whose guidance and support from
the initial to final level enabled me to develop an
understanding of the topic

A special thanks to Miss. Lalitha Pillai for imparting

confidence in me and giving me a chance to handle
this assignment independently. In spite of time
constraints they took special efforts to see that I
could learn as much as possible during the project
work.
 DECLARATION
I hereby declare that the project report entitled
INTRODUCTION OF MERGER AND ACQUISITION has been
prepared by me during the year 2010-2012 in partial fulfilment of the
degree of MASTER OF BUSINESS ADMINISTRATION, MUMBAI
UNIVERSITY.

I also declare that the project work is the result of my

own efforts and it hasnt been submitted to any other university for the
award of any degree or diploma.
Introduction

Indian enterprises were subjected to strict control

regime before 1990s. This has led to haphazard
growth of Indian corporate enterprises during that
period. The reforms process initiated by the
Government since 1991, has influenced the
functioning and governance of Indian enterprises
which has resulted in adoption of different growth
and expansion strategies by the corporate
enterprises. In that process, mergers and
acquisitions (M&As) have become a common
phenomenon. M&As are not new in the Indian
economy. In the past also, companies have used
M&As to grow and now, Indian corporate enterprises
are refocusing in the lines of core competence,
market share, global competitiveness and
consolidation. This process of refocusing has further
been hastened by the arrival of foreign competitors.
In this backdrop, Indian corporate enterprises have
undertaken restructuring exercises primarily through
M&As to create a formidable presence and expand in
their core areas of interest. Mergers and Acquisitions
in India M&As have played an important role in the
transformation of the industrial sector of India since
the Second World War period. The economic and
political conditions during the Second World War and
postwar periods (including several years after
independence) gave rise to a spate of M&As. The
inflationary situation during the wartime enabled
many Indian businessmen to amass income by way
of high profits and dividends and black money
(Kothari 1967). This led to wholesale infiltration of
businessmen in industry during war period giving
rise to hectic activity in stock exchanges. There was
a craze to acquire control over industrial units in
spite of swollen prices of shares. The practice of
cornering shares in the open market and

trafficking of managing agency rights with a view to

acquiring control over the management of
established and reputed companies had come
prominently to light. The net effect of these two
practices, viz of acquiring control over ownership of
companies and of acquiring control over managing
agencies, was that large number of concerns passed
into the hands of prominent industrial houses of the
country (Kothari, 1967). As it became clear that India
would be gaining independence, British managing
agency houses gradually liquidated their holdings at
fabulous prices offered by Indian Business
community. Besides, the transfer of managing
agencies, there were a large number of cases of
transfer of interests in individual industrial units from
British to Indian hands. Further at that time, it used
to be the fashion to obtain control of insurance
companies for the purpose of utilising their funds to
acquire substantial holdings in other companies. The
big industrialists also floated banks and investment
companies for furtherance of the objective of
acquiring control over established concerns. The
post-war period is regarded as an era of M&As. Large
number of M&As occurred in industries like jute,
cotton textiles, sugar, insurance, banking, electricity
and tea plantation. It has been found that, although
there were a large number of M&As in the early post
independence period, the anti-big government
policies and regulations of the 1960s and 1970s
seriously deterred M&As. This does not, of course,
mean that M&As were uncommon during the
controlled regime. The deterrent was mostly to
horizontal combinations which, result in
concentration of economic power to the common
detriment. However, there were many conglomerate
combinations. In some cases, even the Government
encouraged M&As; especially for sick units. Further,
the formation of the Life

Insurance Corporation and nationalization of the life

insurance business in 1956 resulted in the takeover
of 243 insurance companies. There was a similar
development in the general insurance business. The
national textiles corporation (NTC) took over a large
number of sick textiles units (Kar 2004).

Recent Development in Mergers and

Acquisitions

The functional importance of M&As is undergoing a

sea change since liberalisation in India. The MRTP
Act and other legislations have been amended
paving way for large business groups and foreign
companies to resort to the M&A route for growth.
Further The SEBI (Substantial Acquisition of Shares
and Take over) Regulations, 1994 and 1997, have
been notified. The decision of the Government to
allow companies to buy back their shares through
the promulgation of buy back ordinance, all these
developments, have influenced the market for
corporate control in India.

M&As as a strategy employed by several corporate

groups like R.P. Goenka, Vijay Mallya and Manu
Chhabria for growth and expansion of the empire in
India in the eighties. Some of the companies taken
over by RPG group included Dunlop, Ceat, Philips
Carbon Black, Gramaphone India. Mallyas United
Breweries (UB) group was straddled mostly by M&As.
Further, in the post liberalization period, the giant
Hindustan Lever Limited has employed M&A as an
important growth strategy. The Ajay Piramal group
has almost entirely been built up by M&As. The
south based, Murugappa group built an empire by
employing M&A as a strategy. Some of the
companies acquired by Murugappa group includes,
EID Parry, Coromondol Fertilizers, Bharat Pulverising
Mills, Sterling Abrasives, Cut Fast Abrasives etc.
Other companies and groups whose growth has
been contributed by M&As include Ranbaxy
Laboratories Limited and Sun Pharmaceuticals
Industries particularly during the later half of the
1990s. During this decade, there has been plethora
of M&As happening in every sector of Indian
industry. Even, the known and big industrial houses
of India, like Reliance Group, Tata Group and Birla
group have engaged in several big deals.

Research Issues & Objectives

As a result of Indian economic liberalization, and

rapidly changing business environment, there has
been a spurt in the M&As in India. This gives rise to
certain issues in the sphere of mergers and
acquisitions which need to be investigated.
Is there a sudden spurt in M&A activities in India in
the 1990s?

Is it the process of deregulation which has hastened

M&A activities or there are some other reasons?

Is there some visible trend of M&As in the different

sectors of the Indian industry?

Has the M&A strategies resorted by Indian

enterprises affected their performances?

Is it being used as a survival strategy by Indian

enterprises in view of the growing presence of
foreign enterprises in the post 1991 period? Do the
shareholders benefit from M&As?

Out of the above listed research issues, the following

specific objectives have been taken for empirical
investigation.

1. To identify the presence of any trend of M&As of

the Indian industry in the post liberalisation period.

2. To examine the impact of M&As on performance of

corporate enterprises.

Review of Literature

A survey of the available literature on M&As and its

impact on the different aspects of corporate entities
has been carried out. Further, research studies
specific to India and their limitations and research
dimensions for the present study has been found
out. Evaluating the performance of corporations
involved in M&As has been the subject of a great
deal of research. Khemani (1991) states that there
are multiple reasons, motives, economic forces and
institutional factors that can be taken together or in
isolation, which influence corporate decisions to
engage in M&As. It can be assumed that these
reasons and motivations have enhanced corporate
profitability as the ultimate, long-term objective. It
seems reasonable to assume that, even if this is not
always the case, the ultimate concern of corporate
managers who make acquisitions, regardless of their
motives at the outset, is increasing long-term profit.
However, this is affected by so many other factors
that it can become very difficult to make isolated
statistical measurements of the effect of M&As on
profit. The "free cash flow" theory developed by
Jensen (1988) provides a good example of
intermediate objectives that can lead to greater
profitability in the long run. This theory assumes that
corporate shareholders do not necessarily share the
same objectives as the managers. The conflicts
between these differing objectives may well intensify
when corporations are profitable enough to generate
"free cash flow," i.e., profit that cannot be profitably
re-invested in the corporations. Under these
circumstances, the corporations may decide to make
acquisitions in order to use these liquidities. It is
therefore higher debt levels that induce managers to
take new measures to increase the efficiency of
corporate operations. According to Jensen, longterm
profit comes from the re-organization and
restructuring made necessary by takeovers.

Most of the studies on impact of M&As can be

categorized according to whether they take a
financial or industrial organization approach. One
way to measure the performance is to monitor the
share prices after the M&A deal is struck. Empirical
studies of this type indicate that a target firms
shareholders benefit and the bidding firms
shareholders generally lose (Franks & Harris, 1989).
The most commonly employed financial approach
examines trends in the share prices of corporations
involved in M&As and compares them with a
reference group of corporations. Corporate
performance is considered to have improved if the
returns to shareholders are greater after the M&As.
The results obtained using this approach, largely in
the United States and also in Canada, show that
corporate takeovers generally have favourable
consequences for shareholders of the target
companies.

Another set of studies evaluate the impact of M&As

in various measures of profitability before and after
M&As. This type of industrial organisation studies
normally considers longer time horizons than the
share price studies. Most of the firms do not show
significant improvement in long term profitability
after acquisition (Scherer, 1988). There are some
studies which have concluded that conglomerate
M&As provide more favourable results than
horizontal and vertical M&As (Reid, 1968; Mueller,
1980). Many researchers have investigated, whether
related mergers in which the merging companies
have potential economy of scale perform better than
unrelated conglomerate mergers. The evidence is
inconclusive in terms of return to shareholders
(Sudersanam et al., 1993). In terms of accounting
profitability, Hughes (1993) summarises evidence
from

a number of empirical studies to show that

conglomerate mergers perform better than
horizontal mergers. Poor corporate performance in
post-merger period has been attributed to numerous
reasons manager's desire for position and
influence, low productivity, poor quality, reduced
commitment, voluntary turnover, and related hidden
costs and untapped potential (Buono, 2003). Ghosh
((2001) examined the question of whether operating
cash flow performance improves following corporate
acquisitions, using a design that accounted for
superior pre-acquisition performance, and found that
merging firms did not show evidence of
improvements in the operating performance
following acquisitions. Kruse, Park and Suzuki (2003)
examined the long-term operating performance of
Japanese companies using a sample of 56 mergers
of manufacturing firms in the period 1969 to 1997.
By examining the cashflow performance in the five-
year period following mergers, the study found
evidence of improvements in operating
performance, and also that the pre and post-merger
performance was highly correlated. The study
concluded that control firm adjusted long-term
operating performance following mergers in case of
Japanese firms was positive but insignificant and
there was a high correlation between pre and post-
merger performance. Marina Martynova, Sjoerd
Oosting and Luc Renneboog (2007) investigated the
long-term profitability of corporate takeovers in
Europe, and found that both acquiring and target
companies significantly outperformed the median
peers in their industry prior to the takeovers, but the
profitability of the combined firm decreased
significantly following the takeover. However, the
decrease became insignificant after controlling for
the performance of the control sample of peer
companies.
Due to the existence of strict government
regulations, Indian companies were forced to go to
new areas where capabilities are difficult to develop
in the short run. In pursuit of this growth strategy,
they often change their organization and basic
operating characteristics to meet the diversified
businesses and management. In a study by Prahalad
and others (1977), it has been found that, Indian
enterprises in both the private and public sectors are
much diversified. This diversification led to M&As.
They also found that India has a large percentage of
unrelated diversifiers as compared to the USA, UK,
France, Germany, and Italy (Kaul 1991, 2003).

The work of Rao and Rao (1987) is one of the earlier

attempts to analyse mergers in India from a sample
of 94 mergers orders passed during 1970-86 by the
MRTP Act 1969. In the post 1991 period, several
researchers have attempted to study M&As in India.
Some of these prominent studies are; Beena (1998),
Roy (1999), Das (2000), Saple (2000), Basant
(2000), Kumar (2000), Pawaskar (2001) and
Mantravedi and Reddy (2008). There are few other
studies which analyses mergers as case studies only.

Why Companies Merge and Acquire

Introduction

There are numerous reasons why one company

chooses to merge with or acquire another. The
literature suggests that the underlying motivation to
merge is driven by a series of rationales and drivers.

Rationales consist of the higher-level reasoning that

represents decision conditions under which a
decision to merge could be made. Drivers are mid-
level specific (often operational) influences that
contribute towards the justification or otherwise for a
merger. As an example, company A might decide to
acquire company B. The underlying rationale could
be that of strategy implementation. In order to
achieve one or more strategic objectives it may be
necessary for company A to acquire company B
because, at present, there is over-capacity in the
sector in which company A and company B operate.
This is an example of a strategic rationale. The
underlying driver for acquiring company B is the
desire to control capacity in that sector.

An understanding of the various rationales and

drivers behind mergers and acquisitions is very
important in developing command of this text.

Some Underlying Rationales

There are several primary rationales that determine

the nature of a proposed merger or acquisition.
These rationales are:

Strategic rationale. The strategic rationale makes

use of the merger or acquisition in achieving a set
of strategic objectives. As discussed above, a
merger to secure control of capacity in the chosen
sector is an example. Mergers and acquisitions are
usually not central in the achievement of strategic
objectives, and there are usually other alternatives
available. For example, company A might want to
gain a foothold in a lucrative new expanding market
but lacks any experience or expertise in the area.
One way of overcoming this may be to acquire a
company that already has a track record of success
in the new market. The alternative might be to
develop a research and development division in the
new market products in an attempt to

catch up and overtake the more established players.

This alternative choice has obvious cost and time
implications. In the past it has only really been
achieved successfully where the company wishing to
enter the new market already produces goods or has
expertise in a related area. As an example, an
established producer of electronic goods might elect
to divert some of its own resources into developing a
new related highly promising area such as digital
telephones. A large scale example is the electronics
giant Sony in taking the strategic decision to create
a research and development facility in electronics
games consoles in order to develop a viable
competitive base in this area despite there being a
relatively small number of very powerful and
established competitors in the area.

The strategic rationale may also be fundamentally

defensive. If there are several large mergers in a
particular sector, a non-merged company may be
pressured into merging with another non-merged
company in order to maintain its competitive
position. This strategic scenario tends to happen in
sectors dominated by relatively large players. In the
UK, all of the major high street banks were engaged
in merger activity between 1995 and 2002. In the
global oil production sector, all of the major oil
producers were involved in merger activity in the
same period. In some cases three or more major
producers merged into super-companies. In both
industries the merger wave was driven by a need to
respond to the merger activities of competitors.
Speculative rationaleThe speculative rationale
arises where the acquirer views the acquired
company as a commodity. The acquired

company may be a player in a new and developing

field. The acquiring company might want to share in
the potential profitability of this field without
committing itself to a major strategic realignment.
One way to achieve this is to buy established
companies, develop them, and then sell them for a
substantial profit at a later date. This approach is
clearly high risk, even if the targets are analysed
and selected very carefully. A major risk, particularly
in the case of small and highly specialised targets, is
that a significant proportion of the highly skilled
people who work for the target may leave either
before, during or immediately after the merger or
acquisition. If this does happen the actual (rather
than apparent) value of the target could diminish
significantly within a very short time.

Another form of speculative rationale is where the

acquirer purchases an organisation with the
intention of splitting the acquired organisation into
pieces and selling these, or major parts of them, for
a price higher than the cost of acquisition. The
speculative rationale is also high risk in that it is
very vulnerable to changes in the environment.
Apparently attractive targets, purchased at inflated
(premium) cost, may soon diminish significantly in
value if market conditions change.

Management failure rationale. Mergers or

acquisitions can sometimes be forced on a company
because of management failures. Strategies may be
assembled with errors in alignment, or market
conditions may change significantly during the
implementation timescale. The result may be that
the original strategy becomes misaligned. It is no
longer appropriate in taking the company where it
wants to go because the company now wants to go
somewhere else. Such strategy compromises can
arise from a number of sources including changing
customer demand and the actions of competitors. In
such cases, by the time the strategy variance has
been detected, the company may be so far off the
new desired strategic track that it is not possible to
correct it other than by merging with or acquiring
another company that will assist in correcting the
variance.
 Economies of scale

Mergers result in economies of scale for the company.

Economies of scale is the cost benefit that a company
obtains due to merger.
Due to merger, company became large, and therefore, it
can buy materials on a large-scale and also get huge
discounts on purchases.
Similarly, a merged company can produce and distribute its
goods and services on a large-scale.
The types of economies of scale seen in a merger are
depicted below:

The different types of economies of scale are as follows:

1. Technical economies refer to the fixed technical-costs of
the company before merger, this cost reduces after merger.
2. Bulk-buying economies help a merged company to
obtain a discount on buying raw-materials in bulk quantity.
3. Financial economies help a merged company to bargain
(negotiate) on a better rate of interest from financial
institutions.
4. Organizational economies help a merged company to
have a proper or good unity of command as it is lead by
one management with efficiency.

Tax benefits

Mergers result in a large tax benefit to the companies.

A merged company gets tax benefits:
When a profit-making company takes over a loss-making
company.
When a company enjoys a subsidized rate of taxation

. Mergers may allow greater investment in R&D This is

because the new firm will have more profit which can be
used to finance risky investment. This can lead to a better
quality of goods for consumers. This is important for
industries such as pharmaceuticals which require a lot of
investment.

4. Greater Efficiency. Redundancies can be merited if they

can be employed more efficiently.

5. Protect an industry from closing. Mergers may be

beneficial in a declining industry where firms are struggling
to stay afloat. For example, the UK government allowed a
merger between Lloyds TSB and HBOS when the banking
industry was in crisis.

6. Diversification. In a conglomerate merger two firms in

different industries merge. Here the benefit could be sharing
knowledge which might be applicable to the different
industry. For example, AOL and Time-Warner merger hoped
 to gain benefit from both new internet industry and old
media firm

WHY DO MERGER FAILS.

1. Ignorance While the parties to a merger or acquisition

cannot exchange commercially sensitive information prior
to being under common ownership, there is enough
crucially important and legally permissible preparation work
to keep an integration team busy for several months before
day one. Most chief executives dont know this and they
waste the time that could be put to good use while they
await clearance from the regulatory authorities. Good
preparation means the integration can kick off on day one.
Speed matters.

No common vision In the absence of a clear statement of

what the merged company will stand for, how the
organisation will operate, what it will feel like, and what will
be different compared to how things are today, there is no
point of the convergence on the horizon and the
organisations will never blend.

Nasty surprises resulting from poor due diligence This

sounds basic, but happens so often.

Team resourcing Resource requirements are very often

underestimated. It can take two or three months to release
the best players from daily business to join the integration
team(s), find a backfill for them, sign up contractors to fill the
gaps and set up the teams infrastructure. Most companies
start too late and are not ready on once the deal is
completed.

Poor governance Lack of clarity as to who decides what,

and no clear issue resolution process. Integrating
organisations brings up a myriad of issues that need fast
resolution or else the project comes to a stand-still. Again:
speed matters, but with a sound decision-making process.

Poor programme management Insufficiently detailed

implementation plans and failure to identify key
interdependencies between the many workstreams brings
the project to a halt, or requires costly rework, extends the
integration timeline and causes frustration

Lack of courage Delaying some of the tough decisions that

are required to integrate two organisations can only result in
a disappointing outcome. Making those decisions will not
please everyone, but it has the advantage of clarity and
honesty, and allows those who do not find the journey and
destination appealing to step off before the train gathers too
much speed.

Weak leadership Integrating two organisations is like

sailing through a storm: you need a strong captain,
someone whom everyone can trust to bring the ship to its
destination, someone who projects energy, enthusiasm,
clarity, and who communicates that energy to everyone. If
senior managers do not walk the talk, if their behaviours and
ways of working do not match the vision and values the
company aspires to, all credibility is lost and the mergers
mission is reduced to meaningless words.

Lost baby with bathwater Companies contemplating a

merger or acquisition too often omit to pinpoint what
particular attributes make the other party attractive, and to
define how they will ensure those attributes will not get lost
when the organisation and the culture have changed.
Culture cannot be bought it needs to be embraced.

TYPES OF MERGER

here are many types of mergers and acquisitions that

redefine the business world with new strategic alliances
and improved corporate philosophies. From the business
structure perspective, some of the most common and
significant types of mergers and acquisitions are listed
below:

Horizontal Merger
This kind of merger exists between two companies who
compete in the same industry segment. The two
companies combine their operations and gains strength in
terms of improved performance, increased capital, and
enhanced profits. This kind substantially reduces the
number of competitors in the segment and gives a higher
edge over competition.

Vertical Merger
Vertical merger is a kind in which two or more companies in
the same industry but in different fields combine together in
business. In this form, the companies in merger decide to
combine all the operations and productions under one
shelter. It is like encompassing all the requirements and
products of a single industry segment.

Co-Generic Merger
Co-generic merger is a kind in which two or more
companies in association are some way or the other
related to the production processes, business markets, or
basic required technologies. It includes the extension of the
product line or acquiring components that are all the way
required in the daily operations. This kind offers great
opportunities to businesses as it opens a hue gateway to
diversify around a common set of resources and strategic
requirements.

Conglomerate Merger
Conglomerate merger is a kind of venture in which two or
more companies belonging to different industrial sectors
combine their operations. All the merged companies are no
way related to their kind of business and product line rather
their operations overlap that of each other. This is just a
 unification of businesses from different verticals under one
flagship enterprise or firm. .

WHAT IS ACQUISITION

Business acquisition is the process of acquiring

a company to build on strengths or weaknesses of the
acquiring company. A merger is similar to an acquisition but
refers more strictly to combining all of the interests of both
companies into a stronger single company. The end result
is to grow the business in a quicker and more profitable
manner than normal organic growth would allow.

Improving financial performance or reducing risk[edit]

The dominant rationale used to explain M&A activity is that

acquiring firms seek improved financial performance or
reduce risk. The following motives are considered to
improve financial performance or reduce risk:

Economy of scale: This refers to the fact that the

combined company can often reduce its fixed costs by
removing duplicate departments or operations, lowering the
costs of the company relative to the same revenue stream,
thus increasing profit margins.

Economy of scope: This refers to the efficiencies primarily

associated with demand-side changes, such as increasing
or decreasing the scope of marketing and distribution, of
different types of products.

Increased revenue or market share: This assumes that

the buyer will be absorbing a major competitor and thus
increase its market power (by capturing increased market
share) to set prices.

Cross-selling: For example, a bank buying a stock

broker could then sell its banking products to the stock
broker's customers, while the broker can sign up the bank's
 customers for brokerage accounts. Or, a manufacturer can
acquire and sell complementary products.

Synergy: For example, managerial economies such as

the increased opportunity of managerial specialization.
Another example is purchasing economies due to increased
order size and associated bulk-buying discounts.

Taxation: A profitable company can buy a loss maker to

use the target's loss as their advantage by reducing their tax
liability. In the United States and many other countries, rules
are in place to limit the ability of profitable companies to
"shop" for loss making companies, limiting the tax motive of
an acquiring company.

Geographical or other diversification: This is designed to

smooth the earnings results of a company, which over the
long term smoothens the stock price of a company, giving
conservative investors more confidence in investing in the
company. However, this does not always deliver value to
shareholders (see below).

Resource transfer: resources are unevenly distributed

across firms (Barney, 1991) and the interaction of target and
acquiring firm resources can create value through either
overcoming information asymmetry or by combining scarce
resources.[22]

Vertical integration: Vertical integration occurs when an

upstream and downstream firm merge (or one acquires the
other). There are several reasons for this to occur. One
reason is to internalise an externality problem. A common
example of such an externality is double marginalization.
Double marginalization occurs when both the upstream and
downstream firms have monopoly power and each firm
reduces output from the competitive level to the monopoly
level, creating two deadweight losses. Following a merger,
the vertically integrated firm can collect one deadweight loss
 by setting the downstream firm's output to the competitive
level. This increases profits and consumer surplus. A
merger that creates a vertically integrated firm can be
profitable.[23]

Hiring: some companies use acquisitions as an

alternative to the normal hiring process. This is especially
common when the target is a small private company or is in
the startup phase. In this case, the acquiring company
simply hires ("acquhires") the staff of the target private
company, thereby acquiring its talent (if that is its main
asset and appeal). The target private company simply
dissolves and few legal issues are involved.[citation needed]

Absorption of similar businesses under single

management: similar portfolio invested by two different
mutual funds namely united money market fund and united
growth and income fund, caused the management to
absorb united money market fund into united growth and
income fund.

Access to hidden or nonperforming assets (land, real

estate).

Acquire innovative intellectual property.[24]

Megadealsdeals of at least one $1 billion in sizetend to

fall into four discrete categories: consolidation, capabilities
extension, technology-driven market transformation, and
going private.[25]

TAKEOVER

In business, a takeover is the purchase of

one company (the target) by another (the acquirer,
or bidder). In the UK, the term refers to the acquisition of
a public company whose shares are listed on a stock
exchange, in contrast to the acquisition of a private
company.
WHY SHOULD FIRMS TAKEOVER?

International Growth

Businesses can make their services or products available

globally by acquiring businesses in various locations
internationally. For instance, Belgium brewing company,
InBev took over Budweiser for $52 billion in 2008 in order to
expand its presence in the U.S. market and create one of
the largest consumer beverage companies in the world,
according to The Times. Due to the acquisition, profits of the
company rose by 11 percent in 2011, according to France
24.

Diversifying Products

Another reason companies take over other companies is to

diversify products and expand new revenue streams. One
example is Kraft's 2010 takeover of Cadbury for $19.5
billion. The acquisition diversified Kraft's candy line with
more than 40 brands, increased revenue and sales as well
as the company's international presence, especially in
emerging markets, according to articles by Bloomberg
Businessweek and The Wall Street Journal. Even though
integration costs of the acquisition were more than expected
due to commodity prices, dipping into Kraft's overall profit,
the company's sales of Cadbury items were up 30 percent
and its sales in emerging market increased by 74 percent.

Restructuring Companies

Sometimes a company or a private equity firm will take over

an under-performing company or a company that has the
potential to grow in order to restructure the business and
make it profitable. For instance, BJ's Wholesale Club was
taken over by Leonard Green & Partners and CVC Capital
Partners for $2.8 billion in July 2011. The private equity
firms intend to take the retail chain to the next level by
investing money to expand it both nationally and
internationally, according The Associated Press.

Expansion

Sometimes companies will take over other companies that

are in trouble, such as Wells Fargo's 2008 takeover of
Wachovia for $15 billion. Wells Fargo took over the bank,
which was facing massive losses from mortgage loans.
However, Wachovia had the most branches of any bank in
the U.S., and a takeover has expanded Wells Fargo
significantly and quickly throughout the nation, according
the AP. By taking over the troubled company, Wells Fargo
was able to increase its revenue and expand its business
significantly.