MP

Mergers and Acquisitions Notes

Mergers and Acquisitions Overview

  • Definitions:
    • Merger: Combination of two companies to form a new entity.
    • Acquisition: Purchase of one company by another, where the acquiring company gains control.

Microsoft and Activision Blizzard Case Study

  • Acquisition Details:
    • Date: January 18, 2022.
    • Initial Valuation: $68.7 Billion, finalized at $75.4 billion.
    • Date Finalized: October 13, 2023.
    • Goal: Enhance Microsoft's gaming segment by integrating Activision's franchises (e.g., Call of Duty, World of Warcraft).

Key Concepts of Mergers and Acquisitions

  • Mergers:

    • Integration: Both companies contribute to forming a new organization.
    • Mutual Agreement: Friendly collaboration and consent from both parties.
    • Shared Control: Joint ownership and management.
  • Acquisitions:

    • Control Shift: Acquiring company assumes authority over the acquired.
    • Purchase Nature: Can be friendly or hostile.

Motives Behind Mergers and Acquisitions

  • Gaining Complementary Products:

    • Example: Adidas’s acquisition of Reebok, aimed at combining different market strengths in sports and entertainment.
  • New Markets and Distribution Channels:

    • Example: Merger of US Airways and America West, broadening market reach.
  • Realizing Synergies:

    • Example: Pfizer's acquisition of Pharmacia, creating a major global drug company.
    • Explanation: Merging companies often result in reduced redundancies and operational efficiencies.
    • Example: Closing overlapping facilities to cut costs.

Challenges and Strategies in Acquisitions

  • Hostile Takeovers:

    • Definition: Acquisition resisted by the target's management.
    • Example: Unilever’s acquisition of Ben & Jerry's despite resistance from founders.
    • Defense Mechanism: Poison Pill strategy to deter unwanted acquisitions.
    • Implementation: Shareholders exceeding a certain ownership threshold face stock dilution.
  • Horizontal Integration:

    • Strategy of merging with competitors in the same industry (e.g., airlines or Facebook acquiring Instagram).
    • Goals:
    • Reducing Competition.
    • Lowering Costs.
    • Increasing Differentiation.

Strategic Alliances as an Alternative

  • Definition: Voluntary agreements to share knowledge, resources, and capabilities.
  • Advantages:
    • Lower costs compared to outright acquisitions.
    • Example: Barnes & Noble and Starbucks partnership to enhance customer experience.
  • Common Reasons for Forming Alliances:
    1. Strengthen Competitive Position: Collaborate for advantage.
    2. New Market Access: Utilize each other's market presence.
    3. Risk Hedging: Share uncertainties and resources.
    4. Resource Access: Pool expertise and technologies.
    5. Capability Learning: Exchange knowledge and skills.