Various factors come into play when two or more businesses decide to merge, or when (the dominant) one decides to take over the operations of the other.
When management of a firm decides to broaden the scope of operations, one of the options usually considered is the act of identifying a minor playmate in the industry, and then fusing the operations of the two bodies.
Another situation is when an outright purchase devoid of lengthened negotiations, places one firm at the mercy of the other.
A merger becomes a done – deal when two business units with synchronous activities wrap up all arrangements germane to the deal, and as such both derive a form of benefit from the plan.
An acquisition on the other plays a dominant partner against a weaker one, and it is usually sealed when the punier one admits helplessness on the rough corporate terrain, and as such desires an improvement in operations; in instances like this, one has little to say or do.
Whatever the case may be, this strategy involves measures that would be put in place to ensure that a business stays afloat, and it is in that regard that it becomes prudent to identify the various forms of decisions that a business unit can make when such a crossroad is reached.
Various advantages come into play when such a verdict is reached; top on the list is economies of scale. Again the (new) business(es) gain from market expansion or diversification and goodwill. In short a giant attracts more to itself than a weakling.
Industry co – ordinators are usually notified and involved every step of the way. A step in this direction implies a change in product and customer base, and in that regard, the appropriate authorities determine how cards are to be played.
The country’s national bank and its stock exchange (in the case of two financial institutions listed on the Stock Market) would direct the actions to be taken, as in the in Ghana, with regard to the recent deals being executed on the corporate terrain. Mention can be made of the acquisition of Ghana
Breweries Limited (GBL) by Guinness Ghana Limited (GGL) (which changed its name to Guinness Ghana
Breweries Limited, GGBL), Ecobank Transnational Incorporated taking over The Trust
Bank, Ghana Telecom being rebranded to Vodafone, and elsewhere in Africa, Zain (originally Celtel) now Airtel.
Whatever the precursor to the deal is, whenever the right steps are taken to harness the activities of like entities, the various processes engineered to ensure its success would invariably determine the longevity or otherwise of this giant step.
Some terms to note:
- An acquisition is the purchase of one firm by another
- A takeover is the transfer of control from one ownership group to another
- A merger is the combination of two firms into a new entity. In this case, a new company is created and both sets of shareholders have to approve the transaction. It requires a fair opinion by an independent expert on the true value of the firm’s shares when a public minority exists
- A Cash Transaction is the receipt of cash for shares by shareholders in the target company.
- A Share Transaction is an offer by an acquiring company of shares or a combination of cash and shares to the target company’s shareholders.
- Going Private Transaction (Issuer bid) is a special form of acquisition where the purchaser already owns a majority stake in the target company
- A conglomerate is a merger in which two firms in unrelated businesses combine – the purpose is often to ‘diversify’ the company by combining uncorrelated assets and income streams
- A Spin-off is a debut independent company created by detaching part of a parent company’s assets and operations
- Carve-outs are similar to spin-offs, except that shares in the new company are not given to existing shareholders but sold in a public offering
- An Asset Sale is the sale of the assets of a division to other firms
- Synergy value is created from economies of integrating a target and acquiring a company; the amount by which the value of the combined firm exceeds the sum value of the two individual firms.
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