Merger

This page deals with the combination of two companies into one. For information about other uses of the word "merge", see merge.

In business or economics a merger is a combination of two companies into one larger company. Such actions are commonly voluntary and involve stock swap or cash payment to the target. Stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal. A merger can resemble a takeover but result in a new company name (often combining the names of the original companies) and in new branding; in some cases, terming the combination a "merger" rather than an acquisition is done purely for political or marketing reasons.

Table of contents

1 Classifications of mergers 2 Issues 3 Major mergers since 1990 3.1 United States 3.2 Europe 3.3 Japan 3.4 Basic Strategies for Merger Prevention 4 See also 5 External links

Classifications of mergers

• Horizontal mergerss take place where the two merging companies produce similar product in the same industry.
• Vertical mergerss occur when two firms, each working at different stages in the production of the same good, combine.
• Conglomerate mergers take place when the two firms operate in different industries.

A unique type of merger called a reverse merger is used as a way of going public without the expense and time required by an IPO.

Issues

The occurrence of a merger often raises concerns in anti-trust circles. Devices such as the Herfindahl index can analyze the impact of a merger on a market and what, if any, action could prevent it. Regulatory bodies such as the European Commission and the United States Department of Justice may investigate anti-trust cases for monopolies dangers, and have the power to block mergers.

The completion of a merger does not ensure the success of the resulting organization; indeed, many (in some industries, the majority) mergers result in a net loss of value due to problems. Correcting problems caused by incompatibility—whether of technology, equipment, or corporate culture— diverts resources away from new investment, and these problems may be exacerbated by inadequate research or by concealment of losses or liabilities at one of the partners. Overlapping subsidiaries or redundant staff may be allowed to continue, creating inefficiency, and conversely the new management may cut too many operations or personnel, losing expertise and disrupting employee culture. These problems are similar to those encountered in takeovers. For the merger to not be considered a failure, it must increase shareholder value faster than if the companies were separate, or prevent the deterioration of shareholder value more than if the companies were separate.

Major mergers since 1990

United States

• AOL Time Warner; America Online and Time Warner (US$166166 billion) ([1])
• ExxonMobil; Exxon and Mobil Oil (Dec. 1998) ($77 billion) ([1])
• Citigroup; Citicorp and Travelers Group ($73 billion) ([1]) ([1])
• J.P. Morgan Chase, Bank One (announced January 14, 2004) ($59 billion) ([1])
• Procter & Gamble; buy Gilette ($54 billion) ([1])
• Bank of America; with FleetBoston Financial ($47 billion) ([1])
• MCI Communications; with WorldCom; created MCI WorldCom (1997) ($44 billion) ([1])
• ChevronTexaco; Chevron and Texaco ($35 billion) ([1])
• DaimlerChrysler; Daimler Benz and Chrysler (Announced May 1998 - Final 1998) ($35 billion) ([1])
• Vivendi Universal; Vivendi and Seagram (agreed 19 June 2000) ($32 billion) ([1])
• Hewlett-Packard; with Compaq (Announced Sept. 2001 - Final May 2002) ($25 billion) ([1])
• Walt Disney Company; with Capital Cities/ABC (1995) ($19 billion)
• Kmart; with Sears, Roebuck (Announced Nov. 17, 2004) ($12.3 billion)
• Monsanto; with Pharmacia & Upjohn;
• NBC Universal; NBC and Universal
• Pfizer; with Warner-Lambert
• Total; with Petrofina, and Elf Aquitaine
• JDS Uniphase; with SDL
• Union Pacific Railroad; with Southern Pacific Railroad
• Verizon; Bell Atlantic, GTE, and AirTouch Cellular
• G4; with TechTV, purchased for $300 Million by Comcast.

Europe

• Vodafone; with Mannesmann (completed February 2000) ($130 billion) ([1])
• BP; with Amoco (completed August 1998) ($110bn)

Japan

• Sega Sammy; Sega and Sammy (Not yet complete)
• Square Enix; Squaresoft and Enix (April 1, 2003)

Basic Strategies for Merger Prevention

See also

• Mergers and acquisitions
• List of bank mergers
• Takeover

External links

• Merger & Acquisition Report
• Buyout Blog Industry commentary

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