Chapter No: 07

Merger and Acquisition

Strategies
 Key Learning Outcomes
1. Understanding the merger and acquisition strategies.

2. Understanding the reasons of acquisition strategy to

achieve strategic competitiveness.

3. Understanding the problems associated with

acquisition strategy.

4. Understanding the restructuring strategy.

5. Understanding the short-term and long-term outcomes

of restructuring strategy.
 Merger
 A merger is a strategy through which two or more firms
agree to integrate their operations on a relatively co-equal
basis.
OR

 A merger is a combination of one or more business entities

into a single business entity.

 The joining of two or more companies is to achieve greater

efficiency and productivity.
 Merger
Example of
S.No Company Name Merged Into Merge Date Capital Mergers in
Pakistan
1 NIB Bank Limited MCB Bank Likited 2017-08-01 103,028.51
Million

2 Crescent Standard B.R.R Guardian 2019-06-20 0.00 Million

Modaraba Modaraba

3 Shaheen Cotton Mills Shahzad Textile 2010-08-02 147.294 Million

Limited Mills Limited

4 Suzuki Motorcycles Pak Suzuki Motor 2007-10-29 438.989 Million

Pakistan Limited Company Limited

5 KASB Bank Limited Bank Islami 2015-05-11 19,508.616

Pakistan Limited Million

Source: http://www.ksestocks.com/OldCompanies/Merged
 Merger
Types of Merger
 Horizontal Merger: A horizontal merger takes place when
two companies offering similar product to the same
market, and combine under single ownership.

 The purpose of horizontal merger is to increase revenue by

offering an additional range of products to the existing
customers.

 Example: Jazz: Merger of Mobilink and Warid in Pakistan.

 Merger
Types of Merger
 Vertical Merger: A vertical merger also called vertical
integration and is a merger between a manufacturer and a
supplier.

 A vertical merger take place when two companies produce

separate services or components along the value chain for a
final product, and the final product is combine to satisfy a
need of the customer.
Merger
 Acquisition

 An acquisition is, when one, purchases most or all of

another company’s shares to gain control of that company.

Mergers are friendly in nature, where acquisitions

can be friendly or unfriendly.

A takeover is a special type of acquisition where the

target firm does not solicit the acquiring firm’s bid;
thus, on these basis takeovers are unfriendly
acquisitions.
 Reasons for Acquisition
1. Increasing Market Power

2. Overcoming Entry Barriers

3. New Product Development

4. Minimizing the Risk

5. Diversification

6. Gaining Competitiveness

7. Learning and Developing New Capabilities

 Types of Acquisition
 Horizontal Acquisition: It is the type of acquisition in
which one company acquires another company that is in
the same industry.
Example: HBL Acquisition of Barclays’ Bank Pakistan Business
and Operations.

 Vertical Acquisition: It is the type of acquisition in which

one company acquires a supplier or distributor of its own
company.
Example: PSO Acquired 29% shares of Pakistan Refinery
Limited.
 Types of Acquisition
 Related Acquisition: It is the type of acquisition in which a
company acquires another company with similar business,
size, technology and culture in order to increase its
efficiency, product and service offerings.
 Attributes of Successful and Effective Acquisition

1. Acquired firm assets and resources create value for the

firm business.

2. Acquisition process is friendly.

3. Effectively identifying and evaluating acquiring firm health

(Financial, Culture and Human Resources).

4. Estimating R&D and innovation process of acquiring

company.

5. Ability of acquiring firm with change and flexibility.

 Problems in Achieving Successful Acquisition
1. Integration Difficulties

2. Inadequate Evaluation of Target

3. Large Debt

4. Inability to Achieve Synergy

5. Too Much Diversification

6. Managers Overly Focus on Acquisition

 Restructuring
 It is an action or an act of a firm, in which it significantly
modify the financial and operations aspects of the firm,
usually when the firm business is facing financial pressures
and costs.

 A firm restructures its operations or structure by cutting

costs, such as payroll, reducing its size, sale of assets.
 Restructuring
Three types of restructuring strategies:

1. Downsizing

2. Downscoping

3. Leveraged Buyouts
 Restructuring Strategies
Downsizing
 Downsizing is a reduction in the number of a firm’s
employees, and sometimes in the number of its operating
units.

 It is referred as an intentional management action, taken

for improving the firm performance.

 Downsizing is a legitimate strategy and is not necessarily a

sign of an organizational decline.
 Restructuring Strategies
Downscoping
 Downscoping refers to divestiture, spin-off, or some other
means of eliminating businesses that are unrelated to a firm’s
core businesses.

 The main difference in between downsizing and downscoping

is:

 Downsizing: Involves lay-offs.

 Downscoping: Involves selling off business units that are

releated to the main business.
 Restructuring Strategies
Leveraged Buyout
 A leveraged buyout (LBO) is a restructuring strategy
whereby a party (typically a private equity firm) buys all of
a firm’s assets in order to take the firm private.

 Once a private equity firm completes this type of

transaction, the target firm’s company stock is no longer
traded publicly.
Restructuring Outcomes