Week 6: Mergers & Acquisions

1. Why Merge or Acquision?  for the initiator

Horizontal Mergers:

Competition related : a) lowering competition b) reducing the risk of becoming a target c) gaining bargaining power

Production related:  a) producing advantage b) realizing economies of scale and scope c) securing access to new technologies

Market related: a) entering a new product  b) accessing new market/new customers  c) acquiring brand name/ image

Vertical Mergers:

1) reduce transaction costs

2) gaining control over upstream or downstream resources

3) raising barriers to entry

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Conglomerate mergers

1) Diversifying risk

2) Gaining control over complements

3) Increasing management's power/empire building

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2. Why Merge or Acquision?

For the company

1) solving financial problems

2) Producing funds for investment

3) initiating company restructuring

For the management

1) Securing exit (Cash-out)

2) Organizing succession

3) Solving disagreements among shareholders

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Week 6: Mergers & Acquisions

Preservation: value creation by capital investment （投秀才模式）

Symbiosis: coexist for a while and integrate gradually with equal treatment (势均力敌式婚姻）

Holding： no plan to integrate, except for financial transfers, risk sharing or general management capability ( 包养小三模式）

Absorption: high need for strategic integration (男主外女主内式婚姻）

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