Nowadays due to globalization there is a strong competition in a market. That is why some companies resort to mergers in order to increase capital, expand the activities and capture a larger share of the market. And also there is another scenario, when a company weakens, the stronger company will take it over (acquisition). Takeovers are much more common than mergers. But during the process of M&A the set of problems may arise.
The takeover of Chrysler Corporation by Daimler-Benz in a $38 billion stock deal is a powerful demonstration of the globalization of the world economy. The largest industrial company in Germany, and in Europe as a whole, is acquiring one of the biggest American corporations, creating a transnational giant with a work force of 410,000 and an annual output of over $130 billion.
The logic of merger: create a trans-Atlantic car-making powerhouse that would dominate the markets. But by 2007, Daimler Benz sold Chrysler to the Cerberus Capital Management firm, which specializes in restructuring troubled companies, for a mere $7 billion.
Another reason of failure is corporate culture clash. Chrysler was nowhere near the league of high-end Daimler Benz, and many felt that Daimler strutted in and tried to tell the Chrysler side how things are done. Such clashes always work to undermine the new alliance; combine that with dragging sales and a recession, and you have a recipe for corporate divorce.
Also an example of successful mergers illustrates the point. Disney, a company well known for traditional animated films and theme parks, purchased Pixar, a company (created by Steve Jobs during the years he was out of the Apple CEO chair) that made computer-generated children's films. The link-up gave Disney the creative boost its cinematic output needed and gave Pixar access to a huge distribution network.
Disney then parlayed Pixar characters into strategic marketing vehicles, using the likes of Buzz Lightyear in Disney theme parks and toys. “The Disney-Pixar merger is consistent with Disney choosing Pixar because it is similar enough to permit new product synergies,” Phillips told INSEAD Knowledge. “Following the merger, many Disney computer-animated movies (e.g., Toy Story, A Bug’s Life, Cars) have been produced using Pixar technology and distributed by the merged company.”
Nowadays, as we can see, Disney-Pixar is extremely successful alliance; it means that merger went in a right way. Thus, merger and acquisition A merger can happen when two companies decide to combine into one entity or when one company buys another. An acquisition always involves the purchase of one company by another. The functions of synergy allow for the enhanced cost efficiency of a new entity made from two smaller ones – synergy is the logic behind mergers and acquisitions. An M&A deal can be executed by means of a cash transaction, stock-for-stock transaction or a combination of both. A transaction struck with stock is not taxable.
Break up or de-merger strategies can provide companies with opportunities to raise additional equity funds, unlock hidden shareholder value and sharpen management focus. De-mergers can occur by means of divestitures, carve-outs spinoffs or tracking stocks. Mergers can fail for many reasons including a lack of management foresight, the inability to overcome practical challenges and loss of revenue momentum from a neglect of day-to-day operations.