7. Takeovers and mergers: how to manage them.

Key words: acquisition, to impose, restriction, pros and cons, shares, anti-monopoly laws.

1. Before you read, answer the questions:

1) When a company acquires or merges with another company, what changes happen? Is it better for a company to expand by acquisition or by internal growth? What do you think?

2) Some countries introduce regulations in order to protect their domestic industries from foreign competition or rivals. What are some of the pros and cons of such protectionist practices?

3) What are the advantages of developing an in-house resource for managing acquisitions?

Reading task.

2. Read the article below and do the exercises that follow.

Caveat emptor: a rule for the new deal

Enough time has passed since the great merger wave of the late 1990s for us to reflect on its lessons. But we do not have long to contemplate 5 them, for acquisition momentum is growing again.

Yet success still eludes most mega-acquirers. Evidence suggests that the majority of acquisitions do not benefit shareholders in the long term. Valuations tend to be excessively high and targets impossible to achieve. Add to that the vast amounts of management time required by acquisitions and it is clear most acquirers would have been better off channelling their efforts into growth from within.

Imagine bringing together two organisations that ostensibly mirror each other in size and function: two finance, marketing and research and development departments, two sets of manufacturing or retail sites, differing information technology and international operations. Add to that the extra complexity of different countries, cultures, time zones and languages, and it becomes easier to see why most acquisitions fail.

Yet some succeed. Corporate acquirers can achieve their cost saving and synergy objectives even across different countries and cultures. In the earlier wave, most successful mega-acquirers used external consultants to assist with implementation. But now, increasingly, acquirers are bringing the implementation process in-house, hiring former consultants, among others, and building their own expertise in acquisition.

But why create a significant internal resource for something that happens only occasionally? In the long term, it may cost less than hiring consultants, who can charge up to £15m a month. It also offers companies greater control over the process. Over time, a company’s internal merger and acquisition (M & A) skills may become so well-honed that they become much more likely to make future deals succeed.

Less expensively, managers can develop an in-house acquisition methodology. Such a methodology is a set of guidelines and documented processes created by managers, representing the company’s collective knowledge and experience about mergers and acquisitions. An in-house methodology can also aid pre-acquisition processes by setting out guidelines for planning, checklists and a database of key individuals with specialist acquisition expertise. Such guidelines can also help when selecting and managing consultants, and ensures they operate within the company parameters without duplicating work.

Some might argue that creating this kind of in-house methodology for acquisitions is more expensive and time-consuming than it sounds. Yet the cost of getting deals wrong is growing ever higher. As M & A returns to the corporate agenda, it is high time companies took control of the processes that determine their, future success or failure.

3. Complete the following table, based on the article.

a) working with people in different languages

b) using specialist external consultants

c) there is a long-term benefit for shareholders

d) the integration of different information technologies and international operations

e) the process does not take up too much management time

f) working with people from different cultures

g) the cost of the company to be acquired is not overvalued

h) the combination of two finance, marketing and research and development departments

i) coordinating work in different time zones

j) the reorganisation of two sets of manufacturing or retail sites

k) developing an in-house acquisition methodology

l) cost-saving targets can be achieved fairly quickly

m) creating an in-house acquisition implementation department

In a successful merger or acquisition...	Most mergers and acquisitions involve...
Mergers across different countries often involve...	Implementing successful mergers and acquisitions can be achieved by...

4. Mark sentences true or false (paragraphs 1 and 2):

a) Growing acquisition momentum comes at the beginning of a merger wave.

b) In spite of lessons learnt from the late 1990s, large mergers and acquisitions are not often successful.

c) There are good reasons to believe that most acquisitions benefit shareholders.

d) Acquisitions require a lot of management time.

e) Most acquirers think that it is better to concentrate on developing their companies internally.