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.