Of mergers, acquisitions and takeovers

particular route and one such pursuit is through mergers and takeovers (acquisitions).
Mergers and takeovers are very similar corporate actions — they combine two previously separate firms into a single legal entity.
Significant operational advantages can be obtained when two firms are combined and, in fact, the goal of most mergers and acquisitions is to improve company performance and shareholder value over the long term.
Going into business via this route normally brings competitive advantage to the enlarged entity.
A company that combines itself with another can experience a boost in economies of scale, greater sales revenue and market share in its market, broadened diversification and increased tax efficiency.
However, the underlying business rationale and financing methodology for mergers and takeovers are substantially different.
A merger involves the mutual decision of two companies to combine and become one entity; it can be seen as a decision made by two “equals”.
The combined business, through structural and operational advantages secured by the merger, can cut costs and increase profits, boosting shareholder values for both groups of shareholders.
A typical merger, in other words, involves two relatively equal companies, which combine to become one legal entity with the goal of producing a company that is worth more than the sum of its parts.
Zimbabwe registered a total of 11 mergers in 2011 and these were largely in the petroleum industry and the fast moving consumer goods sector.
The most notable ones were the BP-Shell/FMI Zimbabwe merger and the Chevron Zimbabwe/Engen Holdings merger.
Others were Pioneer and Unifreight involving Swift and FBC Holdings’ acquisition of 49,2 percent stake in Eagle Insurance.
There was also the takeover of Makro by OK Zimbabwe as they sought to bring diversity to their retail business.
Interfin took over CFX Bank following a series of challenges that was threatening the future of the financial institution.
In a merger of two companies, the shareholders usually have their shares in the old company exchanged for an equal number of shares in the merged entity.
In 1998, American carmaker Chrysler Corporation merged with German carmaker Daimler-Benz to form DaimlerChrysler.
This was described as a merger of equals as the chairmen in both organisations became joint leaders in the new organisation.
The merger was thought to be quite beneficial to both companies as it gave Chrysler an opportunity to reach more European markets and Daimler-Benz gained a greater presence in North America.
A takeover, or acquisition, on the other hand, is characterised by the purchase of a smaller company by a much larger one.
This combination of “unequals” can produce the same benefits as a merger, but it does not necessarily have to be a mutual decision.
A larger company can initiate a hostile takeover of a smaller firm, which essentially amounts to buying the company in the face of resistance from the smaller company’s management.
Unlike in a merger, in an acquisition, the acquiring firm usually offers a cash price per share to the target firm’s shareholders or the acquiring firm’s shares to the shareholders of the target firm according to a specified conversion ratio.
According to investopedia.com, the purchasing company essentially finances the purchase of the target company, buying it outright for its shareholders.
An example of an acquisition would be how the Walt Disney Corporation bought Pixar Animation Studios in 2006.
In this case, this takeover was friendly, as Pixar’s shareholders all approved the decision to be acquired.
Locally, we have not experienced many hostile takeovers as most of the transactions are mutually agreed and both parties are consenting. In the context of the country’s indigenisation laws there are opportunities for locals to engage with foreign-owned companies to merge operations for a competitive advantage.
Besides seeking compliance with the law, the merged entities have a stronger standing in the market place and prospects for growth.
As always, let’s make money.