1. Mergers and Acquisitions
Group Members
• Waqas Ali Tunio
• Lt. Cdr. Ghulam Qadir
• Saud Zafar Usmani
• Cdr. Tanveer Anjum Bhatti
• Lt. Cdr. Tahir Mughal

2. Scheme of
Presentation
• Introduction - Mergers and
Acquisitions
• Size of the Business
• How can businesses grow?
– Merger
– Acquisition
• Types of Takeovers
• Defensive Tactics against
Hostile Takeovers
• Merger vs. Acquisition – the
difference
• Pros and Cons of Takeovers
• Benefits of Growing – M&A
• Motives for Takeovers
• Conclusion

3. Mergers and Acquisitions
• Corporations strive to increase their earnings
per share over time.
• Methods
– Internal growth:
• A firm acquires specific assets and finances them by the
retention of earnings or external financing
– External growth :
• Involves the acquisition of another company

4. Size of the Business
• Size can be measured in a number of ways. The
most common are
– By number of employees
– By value of output and sales
– By profit
– By capital employed
There is no perfect way of comparing the size of
businesses. It is quite common to use more than one
method and to compare the results obtained.

5. How can businesses grow?
• Mergers
• Takeovers or Acquisitions

6. Merger
• When two or more companies combine. The
shareholders of the target firm are adequately
compensated for, if the merger is effected.
– The combination of two firms into a new legal entity
– A new company is created
– Both sets of shareholders have to approve the
transaction.

7. Acquisition
• When one company acquires another company. The company, that is acquired is
known as target firm. The company, which acquires is called acquiring company. An
acquisition may be either friendly acquisition, when both the companies agree to
the tender offer or may be unfriendly acquisition when the companies do not agree
with the tender offer.
– The purchase of one firm by another

8. Types of Takeovers
Takeover
Takeover may be referred to as a corporate
activity when a company places a bid for
acquiring another company. The company,
which intends to take over the target firm
makes an offer of the "outstanding shares" in
case the target firm is traded publicly.
The transfer of control from one ownership
group to another.
Hostile takeover
Is defined as an "unfriendly takeover". Such
actions are usually revolted against by the
managers and executives of the target firm.

9. Financing a takeover
• Sufficient funds available with the acquiring
company in its own account (unusual)
• Borrowed from a bank or by an issue of bonds
– Debt moves down into the balance sheet

10. Leveraged Buyouts
• Acquisition financed
through debt are
known as LBOs
• Debt ratio of
financing can go as
high as 80%
• The acquiring
company would only
need 20% of the
purchase price

11. Defensive Tactics against
Hostile Takeovers
• People pill
– High-level managers and
employees threaten that they
will all leave the company if it
is acquired. This only works if
employees are highly valuable
and vital to company’s success.
• Shareholders Rights Plan
– Gives non-acquiring
shareholders get the right to
buy 50 percent more shares at
a discount price in the event of
a takeover.
• Selling the Crown Jewels
– The selling of a target
company’s key assets that the
acquiring company is most
interested in to make it less
attractive for takeover.
– Can involve a large dividend to
remove excess cash from the
target’s balance sheet.

12. Defensive Tactics against
Hostile Takeovers
• White Knight
– The target seeks out another
acquirer considered friendly
to make a counter offer and
thereby rescue the target
from a hostile takeover
• Golden Parachutes
– Golden parachutes are
compensation to outgoing
target firm management.

13. Difference between an
acquisition and a merger?
• In the case of a merger, two firms
together form a new company. After
the merger, the separately owned
companies become jointly owned and
obtain a new single identity. When two
firms merge, stocks of both are
surrendered and new stocks in the
name of new company are issued.
Generally, mergers take place between
two companies of more or less same
size.
• However, with acquisition, one firm
takes over another and establishes its
power as the single owner. Generally,
the firm which takes over is the bigger
and stronger one. The relatively less
powerful, smaller firm loses its
existence, and the firm taking over,
runs the whole business with its own
identity. Unlike the merger, stocks of
the acquired firm are not surrendered,
but bought by the public prior to the
acquisition, and continue to be traded
in the stock market.

14. Pros and Cons of Takeovers
Culture clashes within the two
Increase in sales/revenue &
companies
Venture into new business and
market
Reduced competition is bad for
Profitability of target company
consumers & Likelihood of job
Increased market share
Decreased competition cuts
(monopoly) Conflict with new management
Reduction of over capacity in
the industry Hidden liabilities of target
company.
Enlarged brand portfolio
The monetary cost to the
company & lack of motivation
Increase in Economies of Scale for employees being bought
Increased efficiency due to
corporate synergies

15. Motivations for Mergers and
Acquisitions
Creation of Synergy Motive for M&As
The primary motive should be the creation of synergy.
Synergy value is created from economies of integrating a target and
acquiring a company; the amount by which the value of the combined
firm exceeds the sum value of the two individual firms.
• The possible synergies of an acquisition come from the following:
• Revenue enhancement
• Cost reduction
• Lower taxes
• Lower cost of capital

16. Conclusion
The synergy
from a merger is
the value of the
combined firm
less the value of
the two firms as
separate
entities
For Example
Before Merger:
V = 10
A V = 10
B
After Merger: V = 30
AB
Synergy VAB (VA VB )
Synergy 30 (10 10)
Synergy 10