Mergers & Acquisitions: A comparison of the perspectives for shareholders and management

Bachelor Thesis 2005 67 Pages

Business economics - Banking, Stock Exchanges, Insurance, Accounting


Table of Contents

Declaration and Word Count



List of Tables and Illustrations

Chapter 1: Introduction

Chapter 2: Literature review
2.1 Basics for M&A 10 2.1.1 Terminology
2.1.2 Historical review
2.2 Demarcation of internal and external growth
2.3 Demarcation of company co-operations
2.4 Different forms of consolidations
2.5 Chances and risks
2.6 Investor Relations Management as an instrument for a successful perspective for shareholders and management
2.7 Motives for company mergers
2.7.1 Strategic motives
2.7.2 Synergism and efficiency
2.7.3 Building up a strategic market position
2.7.4 Market power
2.7.5 Mergers for know-how
2.7.6 Economic reasons
2.7.7 Subjective reasons
2.7.8 Management
2.7.9 Shareholder
2.8 Methodology

Chapter 3: Findings and Analysis
3.1 Effects of M&A for shareholders and management with a friendly takeover, representation of the example UBS Inc.
3.1.1 Representation of the M&A
3.1.2 Positioning of the UBS after the M&A
3.1.3 Perspectives for the shareholders through an effective Investor Relations Management with UBS
3.1.4 Value-based Management
3.1.5 Communications management as competence for the General Management
3.2 Effects of M&A for shareholders and management with a hostile takeover, representation of the example Sanofi-Aventis Inc.
3.2.1 The hostile takeover bid
from Sanofi Inc.
3.2.2 Economical and political reactions
on the hostile takeover bid
3.2.3 Perspectives for the shareholders
and the management through an
effective Investor Relations Management
with Sanofi-Aventis

Chapter 4: Conclusions



Last page

Declaration and Word Count

I declare the following:-

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Mergers and Acquisitions (M&A) are some of the dominant topics of the economy today, because such a step has big influence on the companies’ development, the location, the employees and the other stakeholders.

Such activities are seen as an instrument of the development of a company since a long time. Companies act or respond with it on competitive situations.

The market for M&A expels in high volumes year by year therefore the interest of the public is accordingly big.

The shareholders and the management of the individual companies play a very big role on that occasion. They make the decision for or against a merger and they are also the ones who will earn profits from such a union, or suffer also damage in the case of doubt through it.

In order to find a solution of this problem, one needs a structured action and a lot of information.

This work deals intensively with the topic of Mergers & Acquisitions and explains on the basis of two examples the possible development. On this occasion, it was distinguished from takeovers also between two different forms; the friendly merger and the hostile takeover.

An especially big hurdle on the way to the new company represents the restructuring and integration of the acquired business into existing structures. Therefore one aim of this work is to show different possibilities of an after-merger-development; for example with Shareholder-Value-Strategies.

Since this is often interconnected with enormous expenditure and high costs, this study deals with the possible consequences for shareholders and management, not only positive but also negative ones.


I would like to thank my supervisor, Dr. Ute Schäffer-Külz, for her help and support. During my work she managed to point me the right direction whenever it was necessary.

I would also like to thank my parents, who did support me during my studies and are always there for me. Without their constant support in financial matters I could not have finished my studies.

List of Tables and Illustrations

Table 1 Strategic targets of the merger-waves

Table 2 Analysis of the offer

Illustration 1 World-wide Merger volume

Illustration 2 Development of the different forms of mergers

Illustration 3 The UBS after the merger

Chapter 1: Introduction

A reinforced interest fight against self developing markets in Europe demands for new strategies. The companies are forced to consider their market position and to select new business fields. The question of survival is placed in this context for many small and middle-class companies. Mergers, takeovers of competitors as well as co-operations with competitors are the only way to face the growing competition with multinational companies. New possible mergers are discussed frequently very strongly as an object of the media interest. The uncommon volume of the mergers that do often cross the national horizon, are justified by many causes like synergy effects or efficiency. Other motives, for example market power, are often a hidden indicator of entrepreneurial concentration and an object of numerous research projects. Especially in change situations there is a high level of insecurity with workers, customers, the public and of course also the owners. The acquisition or the merger of a company represents such a change situation through the complexity of the intent for all participants. Mergers and takeovers necessitate special care in planning, transaction and integration on that occasion through the extremely up time and capital appropriation and the risks connected with it. Current or potential investors have direct influence on the future development of the respective business. Within the integration work the Investor Relations Management is a significant module since it represents all measures within a company. It takes care of all relationships to shareholders, investors, management and similar target groups who are necessary for the merging company. Therefore Investor Relations Management is not only financial marketing, it is also straight business communication with the minimization of the procurement of capital costs in the future.

The present research project analyzes the effects of M&A on shareholders and management. After representation of some basic implementations of Mergers & Acquisitions like, for example, definition, aims, forms of the unions, chances and risks, and Investor Relations Management as instrument for a successful perspective after a merger, the motives for such activities are shown. These are characterized by financial, subjective and strategic objectives. Two empirical examinations are represented outgoing from the raised motive aspects to their differentiation on the basis of a friendly consolidation of companies (UBS Inc.) and on the basis of a hostile takeover (Sanofi-Aventis Inc.).

The essay ends with individual end contemplation.

Chapter 2: Literature review

The literature, which was chosen for the research of this work explained the most important information for all arguments and facts mentioned in this literature review. Most of the books had their focus on the German market and are written by German authors.

2.1 Basics for M&A

2.1.1 Terminology

The terminology of Mergers & Acquisitions means in economic reasons the alliance and the acquisition from companies or parts of them. They are respectively driven by the background of an integration of the acquired objects into existing structures for an increase of the competitiveness of both partners. Through the acquisition of a company new co-operation structures emerge (Möller, 1983, p. 13). They can be characterized using the following aspects:

- Autonomy

The acquired company works independently without all attempts of being influenced by the acquirer.

- Integration

The legal and economic independence of the acquired company is given up and it is completely involved into the acquiring company.

- Part-Integration

The legal and economic independence of the acquired company is partially involved into the acquiring company.

On the basis of these three specifications, a corresponding construction and process organization has to be developed and converted, so that the economic success of the takeover or the amalgamation can be realized consequently.

2.1.2 Historical review

The rapid increase of the world-wide M&A volume in the years 1990 until 2000 expects that international acquisitions are a young appearance of globalized markets. Actually, the historic development of amalgamations is based on five merger waves and reaches back approximately 100 years (Grundy & Slack, 2005, pp. 127).

The development of the merger activity of the years 1890 until 2000, covered on American companies, is represented in table 1.

Table 1:

Strategic targets of the merger waves

(Grundy & Slack, 2005, pp. 128)

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The first merger wave includes the time period of the years 1890 until 1905; it is a consequence of the industrial revolution. The further four merger waves distinguish themselves through different objectives and integration types. The basic motives, market power and synergies, as introduced in section 3, are discussed again in the individual historic strategic objectives many times. They are absolutely significant on the current situation for the entire merger development.

Furthermore, it is obviously clear that the activities of Mergers & Acquisitions are shown in certain cyclic economic developments (Grundy & Slack, 2005, pp. 141). Peculiarities mark the most recent merger development: Here, a tendency appears to high merger volumes and rapidly increasing takeover prices. Such mega amalgamations do more and more focus on future branches like the telecommunications sector. They characterize themselves through a consolidation of similarly strong businesses the so called “Equal Mergers” (Budzinski & Kerber, 2003, pp. 14). Therefore nearly 75 percent of all mergers appear on a horizontal level without product expansion. This trend is not least a reaction to increasing market liberalization and market globalization interconnected with a rising competition pressure on the internationally acting companies (Jansen, 2001, p. 26).

After the crash on the stock market in the year 2000 there can be seen a downward tendency of the M&A activities since the year 2001, not only in volume but also in the quantity of the transactions (illustration 1). But this trend turns slowly back into an upward trend since 2004. This trend can be explained by descending and strongly volatile share prices, as well as an entire economic weakness. Simultaneously, managers expect to achieve sale proceeds. Another reason for the mentioned trend is the investment banks which get under a big pressure caused by too big risks with questions of the merger funding. Nevertheless, further phases of the M&A boom can be assumed in the future (The Economist, 2001).

Illustration 1:

World-wide Merger volume (in billion US-Dollar)

(Thomson Financial Data, 2005)

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2.2 Demarcation of internal and external growth

Regarding to treat the question of the motives for company amalgamations, it is important to understand the different forms of company growth. An internal growth is achieved by the expansion of own capacities, which can relate to increasing demands (Oehlrich, 1999, pp. 42), caused for example by a better market penetration or a better product offer development (Jansen, 2001, p. 105). On the other hand, a consolidation of companies or parts of a company is an external growth. This usually takes place through the takeover of a company and causes the loss of the legal independence (Oehlrich, 1999, p. 7). In the end, external growth is defined by a high speed of growth in the internal development. An already existing company will be acquired and will be directly widen about the value of the existing customer structure, products etc (Zoern, 1994, p. 28).

2.3 Demarcation of company co-operations

In a M&A activity a property transfer is conducted. When companies join a co-operation, there is no change of property and ownership. Co-operations represent a wider form of alliances in contrast to real amalgamations, which can be justified in the following forms:

- Maintenance of global competitiveness;
- Win-win situation despite competition in the same market;
- Realization of global co-operation.

In day-to-day business co-operations differ from company integrations in their form, especially with project-referential alliances and joint ventures; these are frequently called strategic alliances. By that way the organizational connections of the involved companies appear only on the project-specific points of view and therefore are only from temporary continuance. With the formation of a joint venture between two companies, a new company is created for which a new process organization must be constructed. If already existing companies or parts of this are brought in by the co-operation partners, a kind of company integration consists (Taucher, 1988, pp. 86).

2.4 Different forms of consolidations

Today, three different possibilities of consolidations can be seen in the strategic view (Ansoff, 1965, pp. 97):

- Horizontal merger

Merger with a competitor in the same area of business

- Vertical merger

Merger with clients or suppliers

- Conglomerate merger

Merger with companies in other areas of business

If one only looks at the merger types on the basis of the development from 1987 to 1999 (illustration 2) one notices an increase of the horizontal mergers. From a strategic view the merger with competitors apparently appears to be an approved medium to the safeguarding. The trend in vertical mergers decreased since the end of the eighties, because of the so called “just in time production philosophy". In contrast to vertical mergers the risk of business failures could be minimized in a conglomerate strategy within an industry. Another influence on business activities are the regulations of the law against restrictive trade practices (GWB). As a result of it, large enterprises frequently don't have any other possibility than to avoid into indirect related company divisions, through what conglomerates often remain as single possibility to the realization of the business growth (Ansoff, 1965, pp. 97).

Illustration 2:

Development of the different forms of mergers

(Thomson Financial Data, 2005)

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2.5 Chances and risks

The exact analysis of the influential factors is crucial for a successful acquisition strategy within the integration work. The integration success can be described through external and internal sizes which can be subdivided as listed below (Clever, 1993, pp. 26):

- Exogenous expectations
- market and competition
- suppliers and customers
- banks
- political influences
- Endogenous expectations
- company’s structure
- company’s strategy
- management
- employees

The exogenous influencing variables affect the company’s success through the expected and actual behaviour in consequence of the acquisition (for example customers’, competitors’ and suppliers’ behaviour) as well as the attempt to influence the acquisition partners, in order to steer these exogenous factors. The effect of the endogenous influencing variables can be steered by aimed rationalization measures (Hard-Facts), and those which are settled in the social area (Soft-Facts). “Hard-Facts” affect themselves in the realization and consolidation of the company’s structures (organization), company’s strategies, and on the company’s systems (administrative processes). “Soft-Facts” on the other hand, can influence the leadership systems (leadership styles), employees and value attitudes (Clever, 1993, pp. 26).

With the integration of the acquired company, the actual objective of the acquisition is converted. This refers to the pursued business strategy as well as on the striven for entrepreneurial targets. The integration success can therefore be understood as a necessary prerequisite for the acquisition success (Frank, 1993, p. 141). For a successful integration process it is necessary that not only the employees and the management but also the reporting, the IT-solutions and the accountant department are incorporated into the new areas of the acquired company. It is important to involve the employees and the management into the integration measures as early as possible, and, to guarantee an efficient flow of information. Without the willingness of the employees to carry along necessary structure changes and to advance, calculated saving measures usually became invalid. An unambiguous demarcation of the tasks and areas of responsibilities of the leading managers and the premature establishing of clear staff relationships within the new company system makes the co-operation in the general conditions easier and prevents that nearly no experienced manager of the acquired company will leave it during the integration process. For an efficient company control a meaningful report and control system should be installed as soon as possible after the takeover so that eventually early counter-measures can be conducted (Frank, 1993, pp. 142).

The integration of acquired companies requires a costly planning and a controlled transaction. In order to manage all fields of problems, an efficient controlling has to be introduced for the control of the integration process (Willers & Siegert, 1988, pp. 258).

2.6 Investor Relations Management as an instrument for a successful perspective for shareholders and management after the M&A

The German „Investor Relations Kreis e. V.” has the following definition of Investor Relations Management: „Investor Relations passes in the target-oriented, systematic and continuous communication with actual and potential shareholders (decision-makers) of a stock exchange-listed public company as well as with financial analysts and investment consultants (opinion creators) over the past, the present and all in the future expected business of the company under consideration of the industry affiliation and the entire economic connections“ (Frank, 1993, p. 143). Consequently, investor relations are known for the communication politics with an exclusive focus on operative measures. The following listed parameters have to be taken into consideration, regarding to communication decisions (Link, 1991, p. 315):

- Targets for communication;
- Target groups for communication;
- Communication rules;
- Communication network;
- Communication tools;
- Communication budget

Investor Relations Management must be based on fundamental conditions in order to work efficiently. It is characterized through credibility, wholeness, continuity, immediacy and is essential for the submitted information of guaranteeing a proper and extensive view on the company’s present situation. Another difficult task is to treat all shareholders equally with a simultaneous realization of an aim-oriented Investor Relations concept; also a time near inclusion of a great range of shareholders contributes to an adaptation of the information (Müller-Berghoff, 1993, pp. 22).

The targets of Investor Relations Management as an instrument for a successful perspective for shareholders and management after a merger can be differentiated into primary - and secondary targets, which are explained below.

Primary targets

- Long term maximization of the share prices

The main target of investor relations consists of the attainment of an optimal business evaluation, which returns the present business and future growth possibilities fairly and leads to the increase of the share prices (Dürr, 1995, p. 22). Investors measure the management quality and the success of the company’s strategy primarily by the long-term share price development (von Rosen, 1997, p. 1). The contribution of a keen investor relations work for gaining the corporate’s value is assessed on ten to fifteen percent (Heise, 1999, p. 234).



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Mergers Acquisitions



Title: Mergers & Acquisitions: A comparison of the perspectives for shareholders and management