The Phrase Mergers And Acquisitions

MANAGEMENT INFORMATION SYSTEM

ASSIGNMENT # BY: 

MUHMMAD FAROQ AHMAD

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WASIF ALI



HASSAN MANSOOR BUKHARI

TO:  MR. TAHIR ILLYAS

UNIVERSITY OF MANAGEMENT AND TECHNOLOGY LAHORE

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Case Study

MANAGING IT IN THE MERGER AND ACCQUISION The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity. Acquisition An acquisition, also known as a takeover or a buyout, is the buying of one company (the ‘target’) by another. An acquisition may be friendly or hostile. In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. This is known as a reverse takeover. Another type of acquisition is reverse merger, a deal which enables a private company to get publicly listed in a short time period. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly listed shell company, usually one with no business and limited assets. Achieving acquisition success has proven to be very difficult, while various studies have showed that 50% of acquisitions were unsuccessful.[citation needed] The acquisition process is very complex, with many dimensions influencing its outcome. Merger n 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.

Distinction between Mergers and Acquisitions Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things. When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals". Both companies' stocks are surrendered and new company stock is issued in its place. For example, In the 1999 merger of Glaxo Welcome and Smith Kline Beecham, both firms ceased to exist when they merged, and a new company, GlaxoSmithKline, was created. In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it is technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal euphemistically as a merger, deal makers and top managers try to make the takeover more palatable. An example of this would be the takeover of Chrysler by Daimler-Benz in 1999 which was widely referred to in the time, and is still now, as a merger of the two corporations. Effects on management A study published in the July/August 2008 issue of the Journal of Business Strategy suggests that mergers and acquisitions destroy leadership continuity in target companies’ top management teams for at least a decade following a deal. The study found that target companies lose 21 percent of their executives each year for at least 10 years following an acquisition – more than double the turnover experienced in non-merged firms.[7]

Major M&A in the 1990s Top 10 M&A deals worldwide by value (in mil. USD) from 1990 to 1999: Transaction value (in mil. Rank Year Purchaser Purchased USD) Vodafone Air touch 1 1999 Mannesmann 183,000 PLC[12] 2 1999 Pfizer Warner-Lambert 90,000 3 1998 Exxon Mobil 77,200 4 1998 Citicorp Travelers Group 73,000 5 1999 SBC Communications Ameritech Corporation 63,000 Air Touch 6 1999 Vodafone Group 60,000 Communications 7 1998 Bell Atlantic GTE 53,360 8 1998 BP Amoco 53,000 9 1999 Qwest Communications US WEST 48,000 10 1997 WorldCom MCI Communications 42,000

Major M&A from 2000 to present Top 9 M&A deals worldwide by value (in mil. USD) since 2000: Rank Year Purchaser Fusion: America Online Inc. (AOL)

1

2000

2

2000 Glaxo Welcome Plc.

3 4 5 6 7 8 9

Purchased

Transaction value (in mil. USD)

Time Warner

164,747

Smith Kline Beecham Plc. Shell Transport & 2004 Royal Dutch Petroleum Co. Trading Co 2006 AT&T Inc. BellSouth Corporation AT&T Broadband & 2001 Comcast Corporation Internet Svcs 2004 Sanofi-Synthelabo SA Aventis SA Spin-off: Nortel Networks 2000 Corporation 2002 Pfizer Inc. Pharmacia Corporation 2004 JP Morgan Chase & Co Bank One Corp

75,961 74,559 72,671 72,041 60,243 59,974 59,515 58,761

Target Firm IT Categories We can divide the target firms IT into four categories.    

Transactional system that perform the basic transaction of the firm Information system that inform management about the state of operations Strategic system that differentiate the firm in the market place Basic infrastructure that includes both the hardware and software installed

Questions Ans1 The risk involved when the target company may have stopped spending on maintenance years ago to decrease costs competitors in new increase profit. It may have fallen behind competitors in new applications; software licenses may not be transferable to the new company without significant new fees. It might be possible that target company system may b totally incompatible with the acquire system.

Ans2 The firm often fail to take the target firms information system and IT infrastructure when you will need a value there potential contribution to the new firm. There are four options.  Keep the target company system if they are better than your own.  Keep the target company system and retire the target company system if yours are better.  Choose the best of both companies system.  Use the M&A to build an entirely new infrastructure.

Ans3 Although at present the majority of M&A advice is provided by full-service investment banks, recent years have seen a rise in the prominence of specialist M&A advisers, who only provide M&A advice. These companies are sometimes referred to as Transition Companies, assisting businesses often referred to as "companies in transition." To perform these services in the US, an advisor must be a licensed broker dealer, and subject to SEC regulation. More information on M&A advisory firms is provided at corporate advisory.