Question

Principles of Finance II WEEK 7: Discussion Prompt #1 After reviewing the following video, discuss merger fundamentals, including terminology, motives for merging, and types of mergers. Have you been involved in a merger or acquisition or know someone who has? If so, please provide specific examples of how the M&As have impacted the organization and the employees.

https://www.youtube.com/watch?v=H6YlA- bmT4Q

Answer 1

Ans: - Restructing is the corporate management term for the reorganizing the legal , ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs. Alternate reasoms for resturcturing include a change of ownership or ownership structure.

Ownership Restructuring: mergers, acquisition, leveraged buyouts, buyback, spinoffs, joint ventures.

Business restructuring:- reorganisation, outsourcing, divestment, brand acquisition.

Debt restructuring:- changing the finance mix of the organisation.

Merger:- Two or more companies are combine to became one.

Motives of Merger

The following are the motives behind any merger that occurs between the company:-

1. Synergies:- This is one of the most common reason for the merger. It is expected that when two companies merge to form a new bigger company, the value of the new entity will be more than a combined value of two seperate company.
2. Rapid Growth:- Generally, every companies has two options to grow i.e., organic growth and external growth.
3. International Growth:- There are several reasons specifically for international growth are:-

• Unique products can be marketed in new market
• Tranfer of new tecnology
• Exploiting market inefficiency
• continued support to international clients.

Types of merger:-

1. Conglomarate Merger:- A merger between firms that are involved in totally unrelated business activities. There are two types of conglomerate mergers: pure and mixed. Pure conglomerate mergers involve firms with nothing in common, while mixed conglomerate mergers involve firms that are looking for product extensions or market extensions.
2. Horizontal Merger :- A merger occurring between companies in the same industry. Horizontal merger is a business consolidation that occurs between firms who operate in the same space, often as competitors offering the same good or service. Horizontal mergers are common in industries with fewer firms, as competition tends to be higher and the synergies and potential gains in market share are much greater for merging firms in such an industry.
3. Market Extension Merger:- A market extension merger takes place between two companies that deal in the same products but in separate markets. The main purpose of the market extension merger is to make sure that the merging companies can get access to a bigger market and that ensures a bigger client base.
4. Product Extension Merger:-

   A product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market. The product extension merger allows the merging companies to group together their products and get access to a bigger set of consumers. This ensures that they earn higher profits.

5. Vertical Merger:- A merger between two companies producing different goods or services for one specific finished product. A vertical merger occurs when two or more firms, operating at different levels within an industry's supply chain, merge operations. Most often the logic behind the merger is to increase synergies created by merging firms that would be more efficient operating as one.

Impact of merger and acquisition on employees

1. Office Culture:- Employees often struggle to fit into a new office culture when companies merge. Mergers result in a new way of doing business, and employees sometimes resist the changes because they don't understand how they fit into the new business and office culture. This discomfort can dissipate as employees learn about the new company and its goals. Getting to know the new managers and the duties you're responsible for can bring a new understanding of how that aligns with the merged company's goals.
2. Job Security:- Merger announcements make employees cringe because layoffs usually follow company mergers. Some employees immediately look for new jobs rather than waiting to find out if they'll keep their jobs after a merger. However, mergers may increase job security for employees who aren't laid off. Companies merge partly because they anticipate creating a stronger business by combining finances and other resources. Employees' job security grows if a merger creates a more competitive business that's financially stable.
3. Competitiveness:- Insecurity can often elicit competitiveness amongst employees and a conflict driven environment. Again, in this instance, it is important for managers to assure employees of their future within the business. Whilst some friendly competition can be perceived as good, competition is not encouraged when it creates tension and consequently, conflict.