Takeovers, mergers and buyouts MK, Unit 21 Handout1 Handout 2 photocopy: Market Leader

How can a company grow? Internally -- organic growth Externally -- integration 2

INTERNAL GROWTH How? Increasing production Entering new markets Innovation: launching a new product Line extension adding a similar type of product to the product line Diversification adding a new type of product to the range 3

EXTERNAL GROWTH How? 1. Merger (v.: to merge, to amalgamate, to unite) 2. Acquisition (v. to acquire, to take over, to buy, to purchase) Friendly takeover Hostile takeover (e.g., raid (v. to raid)) 4

Stakes A stake/ an interest/ a holding in a company A majority stake/ interest/ holding A minority stake/ interest/ holding The shares that one investor has in a company.

Find definitions for these terms (p. 105) Horizontal integration Vertical integration: backward, forward A merger A raid A takeover bid A friendly bid A friendly takeover A hostile bid A hostile takeover M&A Leveraged LBO Being undervalued on the stock market Asset-stripping

Reading, MK, p. 105 How do successful companies use their profits? Why do companies take over other companies? When do mergers and acquisitions happen? Explain the difference between a bid and a takeover. Why is a raid unlikely to result in the acquisition of a controlling interest? Who helps companies in mergers and acquisitions? Do you think that it is in the interest of banks to convince a company to acquire another? When do LBOs happen? How do raiders make money?

Types of integration (1) Horizontal integration Vertical integration Forward Backward Lateral/Conglomerate Integration: Two unrelated firms joining. Draw a diagram illustrating these types of integration. Do drawing!!! 8

Types of integration: name the arrows Distributor Producer (e.g. chairs) Competition Supply chain Unrelated business (e.g. a tourist agency) Supplier

Types of integration Supply chain Horizontal Forward vertical Distributor Horizontal Forward vertical Producer (e.g. chairs) Competition Supply chain Backward vertical Conglomerate Unrelated business (e.g. a tourist agency) Supplier

Find word partnerships in the text new markets a company share savings (part-)ownership a raid/a takeover bid a fee a conglomerate synergy Enter Take over Market Merge with Cost Acquire Launch Earn Form Achieve

LBO (Leveraged buyout) Financed, assets, 'asset stripping’, collateral, cash flow, acquisition, capital The ___ of another company ___ by a significant amount of borrowed ___(bonds or loans). Often, the assets of the company being acquired are used as ___ for the loans in addition to the ___ of the acquiring company. After the purchase, the loan is paid from the firm's ___ and/or by selling off its assets (called ___). http://www.businessdictionary.com/definition/leveraged-buyout-LBO.html http://www.investopedia.com/terms/l/leveragedbuyout.asp

LBO (Leveraged buyout) The acquisition of another company financed by a significant amount of borrowed capital (bonds or loans). Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. After the purchase, the loan is paid from the firm's cash flow and/or by selling off its assets (called 'asset stripping'). http://www.businessdictionary.com/definition/leveraged-buyout-LBO.html http://www.investopedia.com/terms/l/leveragedbuyout.asp

Listening https://www.youtube.com/watch?v=HBEE0ESogEY www.london.edu/videoandaudio/executiveeducation/mergersandaquisitions.html Listen to the speaker and write down the keywords of what he is saying.

Read the text on the handout and decide if these statements are true or false. The majority of mergers take place in the USA. Many international mergers are failures. Most attention is concentrated on what to do after the merger is completed. Many mergers are done too quickly. Connecting different computer systems together is not usually a problem. High salaries were given to Chrysler managers as compensation for the merger with Daimler-Benz. Chrysler has won many prizes for its production methods. Engineers have a high status at Daimler-Benz. 1F, 2T, 3F, 4T, 5F, 6F, 7F, 8T

Listening (1) https://www.youtube.com/watch?v=9rvwB1W-mqI What did you find out about the Daimler – Chrysler merger’s success? Reuters: Daimler and Chrysler to part

Listening (2) Who are Dieter Zetsche and John Snow? In what context were the following numbers mentioned? $7.4 billion 80.1% 13,000 $1.5 billion The amount Cerberus paid for Chrysler group Cerberus’s stake in Chrysler Group The number of workers who will lose their job Chrysler’s operating loss in 2006

“Why do the British welcome foreign ____, but dread being ______?” Practice: Fill in the blanks with the correct form of the words: to merge, takeover, sale, to take over, offer, deal “Why do the British welcome foreign ____, but dread being ______?” “The _____ of Cadbury by Kraft” “Rangers ___ confirmed” “Rangers ____ closed” “Rangers ____ Accepted” US carmaker Chrysler and Italian carmaker Fiat _____ to create worlds sixth largest global auto giant.

Solutions: “Why do the British welcome foreign takeovers, but dread being taken over?” “The takeover of Cadbury by Kraft” “Rangers sale confirmed” “Rangers deal closed” “Rangers Offer Accepted” US carmaker Chrysler and Italian carmaker Fiat merged to create worlds sixth largest global auto giant.