pinell, jose - overview of mergers and acquisitions (module 1)

8/14/2019 Pinell, Jose - Overview of Mergers and Acquisitions (Module 1)

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Overview of Mergers and Acquisitions 1

Running head: OVERVIEW OF MERGERS AND ACQUISITIONS

Overview of Mergers and Acquisitions

Jos F Pinell G.

Grand Canyon University: FIN-660 Advanced Financial Strategies

June 12, 2013


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Overview of Mergers and Acquisitions

Based on Chapter 1 from our textbook, mergers and acquisitions (M&A) are used as

change agents for corporate restructuring among other strategies used by Fortune 500

companies (DePamphilis Ph.D., 2012).

According to our book, there are many reasons why M&A occur. Table 1.1 shows a lists

of theories to that effect. All these reasons seem to fall in line with one objective in mind: to

achieve certain strategic and/or financial position. It involves bringing together one or more

companies with different value systems and cultures to achieve the desired goal (Pict, 2005).

In an M&A, there are many stakeholders involved that want the transaction to succeed;

these include employees, managers, communities, and consumers to name a few.

The term M&A has received a bad reputation due to actions that took place in the past.

This reputation was enhanced by the media and movie industry with images of corporate raiders

taking over companies and selling it into pieces leaving a large number of unemployment and

devastating communities.

The government has taken an active role in overseeing this type of corporate restructuring

to prohibit certain activities that can reduce the competitive nature of the economy and avoid

large trusts since mergers have the potential to reduce competition.

The reasons behind mergers can be divided into synergy, growth, diversification to

reduce risk, economies of scale, guaranteed sources and markets, cheap assets procurement, and

tax loses (DePamphilis Ph.D., 2012).

On one hand, our book explains that synergy occurs when the combination of

performances from each entity is expected to improve when working as one. It also usually

brings about cost savings opportunities (DePamphilis Ph.D., 2012).


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On the other hand, growth occurs in two ways: internal and external. The first occurs

when the companies more of their current businesses while external growth happens when a

company acquires a competitor.

In terms of risk reduction, diversification into many businesses can offset losses.

Economies of scale follows the idea that a larger company can operate at lower cost

levels. Furthermore, acquiring a company can secure supplies especially if they are of limited

supply or hard to get.

On the financial side, we can also add that sometimes it is cheaper to buy a company that

has the desired assets instead of buying those same assets individually. An example of this is the

company formerly known as Research in Motion (RIM) which in 2012 acquired QNX.

In the case of tax losses, when a company wants to shelter its earnings, that company can

buy a company with a tax loss.

M&A are characterized by the advisorsattorneys and investment bankersthat take

part in the transaction. They have taken a more aggressive role since the 1980s. This is due to

heavy government scrutiny and anti-trust regulation.

In our times, M&A have evolved from local or domestic transactions into the global field

due to the evolution of technology, global economic integration, and the modification of trade as

well as investment barriers.

Currently, companies compete globally and they have to take the necessary actions to

maintain their competitive edge. Thus, borders are becoming blurred and we are starting to see

more organizational innovations like strategic alliances or joint ventures in order to achieve the

same competition objectives.


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I believe that no matter the main objective of the acquisition, it must be in line with the

companys business strategy because, as I have learned through this MBA program, such

strategy is aimed at developing a sustainable competitive advantage for the company whether

such advantage is achieved through economies of scale or scope to name a few (Mahoney,

2005).

In the case of RIM, they decided to acquire QNX Software Systems in April 2010 to

pursue their entrance into the table market, diversification into the automobile telematics,

infotainment and navigation systems (Wikipedia, 2013), and, currently, into the revamping of

their wireless mobile operating system known as BlackBerry 10.

Another current example is Honda Motor Co., Ltd. which created a joint venture with

Bangladesh Steel and Engineering Corporation in order to expand its market (Honda Motor Co.,

Ltd., 2012).

In august 2005, American Express decided to spin off (divestiture) one of its subsidiaries

(American Express Financial Corporation) in to what it is now known as Ameriprise Financial,

Inc. (Wikipedia, 2013).

In summary, M&A activity is alive and now is a global phenomenon. Companies will

continue to acquire or merge in order to create that strategic advantage to be able to globally

compete and increase their market shares. This activity will continue under the watchful

governments eyes to keep a fair playing filed.


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References

DePamphilis Ph.D., D. M. (2012).Mergers, Acquisitions, and Other Restructuring Activities(6

ed.). San Diego, CA, USA: Elsevier Inc.

Honda Motor Co., Ltd. (2012, September 27).Honda Signs Joint Venture Agreement to

Establish Motorcycle Subsidiary in Bangladesh. Retrieved from Honda Motor Co., Ltd.:

http://world.honda.com/news/2012/c120927Motorcycle-Subsidiary-Bangladesh/

Mahoney, J. T. (2005). Resource-Based Theory, Dynamic Capabilities, and Real Options. In J.

T. Mahoney,Economic Foundation of Strategy(pp. 167-217). Thousand Oaks: Sage

Publications.

Pict, G. (2005).Handbuch Mrgrs & Acquisitins.Stuttgart: Schffr-Pschl Vrlag.

Wikipedia. (2013, June 10).Ameriprise Financial. Retrieved from Wikipedia:

https://en.wikipedia.org/wiki/Ameriprise

Wikipedia. (2013, May 31). QNX. Retrieved from Wikipedia: https://en.wikipedia.org/wiki/QNX

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