Match the terms on the left to the definitions on the right.
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UNIT 3
MERGERS AND ACQUISITIONS
Exercise 1a Bid types.
Match these adjectives, and others describing takeover bids, to their meanings.
| abortive | unsought | ||
| contested | unwanted | ||
| derisory | fought against | ||
| If a bid is | inadequate | it is | insultingly low |
| sweetened | not enough | ||
| unsolicited | unsuccessful | ||
| unwelcome | improved |
Exercise 1b
A. Read the article below about mergers and acquisitions. What benefits and problems are mentioned? Pay close attention to the underlined words and phrases.
IN SEARCH OF SYNERGY
Firms use mergers and acquisitions (M&A) to grow quickly and gain resources or market share faster than is possible through internal development. The terms "merger" and "acquisition" are often used as synonyms, but there is a difference.
A true merger joins equal partners. Two companies agree to combine their operations and assets on an equal basis. They each give up their own shares,issue new shares, and form a new company. Examples are the mergers to create Exxon Mobil or (AOL) Time Warner. In an acquisition, also commonly called a takeover, one firm tries to gain control of another firm by buying a majority of its shares or assets. If the target company welcomes the bid, this is called a friendly takeover, but if the company objects, it is called a hostile takeover. The difference often depends on the price per share that has been offered.
Many companies follow the M&A growth route in search of synergy. This effect happens when the value of the new whole is more than the value of the old individual parts. How does that work? Firstly, companies can lower their costs by cutting duplicated functions. This generally means reducing staff. Secondly, by combining assets, the merger or takeover creates economies ofscale. A bigger company gets better terms and conditions with suppliers. Thirdly, companies can combine their skills to create something original. Disney, for example, combined its marketing strength with Pixar's technical skills to create new types of computer-animated films, such as Toy Story, At first the relationship was based on cooperation, but Disney finally bought Pixar from its owner, Steve Jobs, in 2006.
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Although a pairing may seem perfect on paper, M&A require huge organizational and structural changes and often don't produce the return investors had hoped for. Take the scenario where one company's base is used as the headquarters for the merged company. The other company's office closes, and many managers in both companies lose their jobs. Those remaining feel beleaguered and under threat of losing theirs later. They may dislike the way the managers from the other company work. In cross-border mergers, these difficulties are compounded by cross-cultural misunderstandings and tensions. Problems such as these explain why merged companies so often fail to live up to the promise of the day of the press conference when the two CEOs vaunted the merger's merits.
There are many examples of M&A that fail, such as the DaimlerChrysler merger - but most company heads will nonetheless keep their eyes open and hope that the right opportunity comes along.
B. Work with a partner and complete the quiz. Check your answers with your teacher and discuss in the group.
QUIZ- A marriage of equals?
1. About what percentage of M&A provides increased value for investors?
1. 5 per cent 2. 60 per cent 3. 30 per cent.
2. Was 2006 a busy, average or slow year for M&A?
1.busy 2. average 3. slow
3. Sometimes the two companies describe an "acquisition" as a "merger" to the press. Why?
1. political reasons 2. legal reasons 3. tax reasons
4. Which expression below is the opposite of M&A?
1.asset 2. carve-out 3. takeover
5. The biggest M&A ever was in which business field?
1. energy and petrochemicals (Exxon/Mobil)
2. automobiles (Daimler/Chrysler)
3. communications (Vodafone/Mannesmann)
Exercise 2
Unwilling partners. Here are two articles about the Renault-Volvo merger proposed during the early 1990s. One comes from the Wall Street Journal and was written when the merger was first under discussion. The other comes from the Financial Times after the proposed merger had been rejected. Sections from each have been interspersed, but are in the right order. Reconstitute each article.
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"RENAULT, VOLVO IN 'PRELIMINARY'
TALKS: MERGER WOULD CREATE NO. 4 AUTO FIRM"
"FIRMLY EMBARKED ON NEW STRATEGY- PROFILE: VOLVO"
a Stung by mounting global competition, Renault of France and AB Volvo of Sweden are exploring a possible merger that would create the world's fourth largest auto company and the biggest truck maker. Volvo confirmed that it and Renault are in 'preliminary' talks. Government-owned Renault declined to comment except to say that it is actively seeking partners.
b Firing on all cylinders.' 'Up to speed again.' 'Back in top gear.' To the relief - and pride - of most Swedes, the motoring metaphors have been flowing thick and fast this year for Volvo, the country's biggest manufacturer. Thanks to a dramatic recovery in profits, memories of the ignominious collapse at the end of 1993 of Volvo's plans to merge with France's Renault have faded fast.
c Neither company would discuss details nor comment on the likely outcome of negotiations. But individuals in both countries said the talks have covered a wide range of options, including collaboration in both car and truck operations and perhaps even a full-scale merger of the two concerns eventually.
d People familiar with the talks emphasized that no immediate agreement is in the offing and that some very formidable corporate and political hurdles would have to be cleared before any alliance takes place. One person said the obstacles to a major alliance may be insurmountable. Industry analysts also were skeptical about a combination of two such disparate vehicle makers.
e Volvo returned a 12-fold growth in pre-tax profits in the first nine months of the year to record a surplus of Skr 12.7 billion, on turnover of Skr 112.2 billion. Under the energetic Mr Soren Gyll, the chief executive who has emerged as the new dominant figure in Volvo, the company is firmly embarked on a new strategy to focus on its core vehicle-making operations.
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f By the end of 1996, it intends to have sold off all its non-core activities, raising a total of some Skr 40 billion to finance the future development of cars and trucks. Today, there is a widely-held view in the industry that Volvo Truck Corporation is already in strong shape. At the nine-month stage, worldwide unit truck sales were up 38 per cent at 49,400, delivering a jump in operating profits to Skr2.7 billion.
Exercise 3
Match the terms on the left to the definitions on the right.
| 1. alliance 2. joint venture 3. LBO (leveraged buyout) 4. MBO (management buyout) 5. merger 6. takeover / acquisition | a) getting control of a company by buying over 50% of its shares b) two or more companies joining to form a larger company c) a business activity in which two or more companies have invested together d) when a company's top executives buy the company they work for e) buying a company using a loan borrowed against the assets of the company that's being bought f) an agreement between two or more organisations to work together |
Exercise 4
A. Make as many expressions as you can from the words in the box. For example, 'to take a stake in a business'.
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