Critical Analysis of Mergers and Acquisitions: Motives and Strategies

This report provides a comprehensive analysis of mergers and acquisitions (M&A) in the context of global business. It delves into the motives driving M&A activity, including synergy, diversification, and growth, examining their strategic significance. The report critically assesses these motives, particularly the views of financial professionals on diversification and earnings growth as justifications for M&A. It explores international M&A, the role of globalization and financial reforms, and provides examples like the Exxon and Mobil merger and the GlaxoSmithKline merger. The report also highlights key aspects for successful M&A, such as mindset, pricing, valuation, and adherence to local laws. Additionally, it discusses the importance of adapting to change and diversification in marketing tactics for companies, along with a figure illustrating worldwide M&A activity over the years. The analysis aims to provide a detailed understanding of M&A strategies and their impact on financial performance and global market dynamics.

ANALYSIS OF MERGER AND ACQUISITIONS
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Introduction
In this present world of globalisation, various business companies are merging and acquiring
with other companies for increasing their profit margin and market revenue. This is essential
for all companies to concentrate as the financial profit revenue and per capita income of their
companies depend on merging and acquiring of business processes. Merging occurs between
two separate companies, most of the comparable size to combine forces for the creation of
new joint organisations where theoretically both the companies are equal mergers.
Meanwhile, the acquisition means to take over one entity by another. Mergers and
acquisitions may be completed to expand the company’s reach or gain market share in an
attempt to create shareholder value. This essay will stressfully concentrate on various aspects
of Mergers as well as acquisitions and their analysis on a global basis. The two terms have
been greatly synced in the modern world of globalisation and considered as one of the major
factors for one another. The essay will provide all the information which is necessary to
understand the difference between mergers as well as acquisitions. Along with that, the essay
will also provide specific examples with data which are essential for the essay for detailed
analysis of the topic of Mergers as well as Acquisitions. This essay revolves around negative
perspectives regarding the growth and earning profit from the merger as well as acquisitions
in the cross border area among managers. This essay tries to prove that importance of merger
as well as acquisitions in the business process and significant success level in the market.
Analysis of Merger and Acquisitions
International Mergers as well as Acquisitions who also are termed as Border M&As refer to
those that are occurring outside the boundaries of a particular country. The contribution
towards the development of international mergers as well as acquisitions is tremendous by
globalisation and international financial reforms. As influenced by the views of Rani, Yadav
and Jain (2015, p.409) it can be stated that international mergers and acquisition agencies are
performed for the task of undertaking some serious strategic benefits in the global market of a
particular country. Based on the views of Lee, Mauer and Xu (2018, p.119) it can be analysed
that this process helps the multinationals in experiencing economics of market scale and
market dominance which stimulates the growth of a direct international investment.
According to (Ahammad et al. 2017, p.183) there is an adequate amount of presence of
international mergers as well as acquisitions firm and organisations which contribute to
educational programmes and skilled training for the development and growth of the merger
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and acquisitions professionals performing in the global merger and acquisitions sector.
Examples of which are Morgan Stanley, Barclays Capital, JP Morgan and others.
The motives of the mergers, as well as acquisitions of the international market, are numerous
to be analysed. As per the views of Hosken and Tenn (2016, p.250) mergers as well as
significant acquisitions take strategic decisions for the beneficiation and upliftment of their
individual companies. They have become popular in recent times because of the enhanced
market competition in the global money market. According to Reddy (2015, p.19), there has
been significant growth of the market values of the mergers and the acquisitions because of
the breaking of trade barriers influencing greater business market all over the globe, boosting
globalisation and free flow of capital amount of money in the international market. There are
a number of motives of the mergers as well as acquisitions which are considered for having
tremendous significance because of the mergers as well as acquisitions.
The first and the foremost motive of merger and acquisitions is constructing synergies with
other companies as the market revenue of the joint organisations is higher than that of the
individual firms. As influenced by the views of Uhlenbruck et al. (2017, p.49), it can be
stated that synergy explains the market benefits other than those related to the economics of
scale. Operating benefits can also be termed as synergy benefits, but keeping aside the
operative economics, synergy rise from the capabilities and the creativity, innovation,
Research and development and market coverage capacity for complementary of resources
and skills and wide retrospect of limitless opportunities.
Diversification is another motive of the mergers as well as acquisitions, which is a common
motive to sustain risk assessment and significant risk reduction, which is tremendously
beneficial for the mergers as well as acquisitions. As opined by the views of Clark (2013) it
can be stated that the mergers and the acquisitions examine the risk which is involved or
expected to reduce the risk and establish a correlation between the earning profit revenues
and profits of the merging companies. Bishop (2015) opined that negative correlations
provide a greater reduction of risks and positive correlations provide a lesser reduction of
risks which are necessarily considered with greater threat marking by the mergers as well as
acquisitions. The motive of diversification is totally based on the fact of the combining of the
two consecutive risks of the companies. As opined by the views of Dobbs, Nand and Rehm
(2005) significant analysis can be performed in order to understand the fact that the combined
risk percentage of the two combined companies is less than that of the separate individual
companies. Conglomerate mergers mostly are beneficiary of diversification as two different
companies when poorly merge with each other and poorly correlate their individual cash
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flows to merge and create a portfolio of the merged companies. This is the reason for
combining the two different companies of separate industries for the ultimate beneficiation of
the particular company. Based on the views of Reddy (2015, p.21), it can be analysed that
firms mainly focus for the diversification of sales and growth stability, favourable growth
improvements, favourable competition shifts and significant technological changes which are
essential for the companies.
A significant example of a particular company which followed the motive of diversification
is the merger of Exxon and Mobil, which are two large oil companies of the US. they signed
a $78.9 billion agreement to merge with one another and form a new multinational oil
company called Exxon Mobil Corporation (Corporate.exxonmobil.com, 2019). The
regulations were considered and completed in November 1999. This agreement was unique in
American history as it reunited the two giant companies, Standard Oil Company of New
York and Standard Oil Company of New Jersey (Corporate.exxonmobil.com, 2019). The
company invested more than $2 billion on Bayton expansions for the further growth of the
Gulf for creating jobs. The company benefits $64 billion benefits from the company’s
investments, which is a tremendous achievement of the company
(Corporate.exxonmobil.com, 2019).
Growth is essentially significant for any organisation, whatever the growth may be.
Depending on the concept of growth, it can be evaluated that the growth of companies can be
of various kinds, which included financial, customer basis, brand related and others. As per
the views of Uhlenbruck et al. (2017, p.49), a growth-oriented company is always concerned
about steady growth and improvement of the particular company and is able to attract the
most talented and skilled executives, and it would be able to retain them. As influenced by
the views of Reddy, Xie and Huang (2016, p.957) it can be analysed that Growing operations
provide challenging factors and excitement factors necessary for the generation of the
executives and as well as the opportunities for the enrichment of their job and fast career
development. This influence of challenging and exciting factors increases the managerial
efficiency of the companies. As per the views of Blonigen and Pierce (2016, p.41) market
growth leads to higher level profit gathering, which is tremendously significant for a
particular company to increase its market growth and brand promotion. Acceleration of
growth largely depends upon two factors which are essential for all merging companies to
consider which is to expand its market share in the existing company’s market and entering
into new markets for the continuation of the business process.
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A significant example of the Acceleration of growth of merging companies can be
significantly understood as one of the largest global medical company GlaxoSmithKline
(GSK) is the significant creation of the acceleration of growth. The year was 2000 when the
two companies Glaxo Wellcome and SmithKline Beecham in the US significantly merged
with each other for gaining market and reduce their market risks for the creation of
GlaxoSmithKline (GSK) which is one of the notable companies in the modern global medical
market (The Wall Street, 2019). The deal was fixed in $76 billion between Glaxo Wellcome
and SmithKline Beecham the merging game birth to a new company which was named as
GlaxoSmithKline (GSK) where it received a market share of around 7.3% for its research and
development with the budget of $4 billion marking a significant growth for the company (The
Wall Street, 2019). GlaxoSmithKline (GSK) enjoyed sales revenue of $30,281 billion in
2018, which portrays the company’s huge growth in the international market (The Wall
Street, 2019). There was a 2.7% increase in its market value, which is considered an
outstanding growth of acceleration for the company securing the financial grounds of the
company (The Wall Street, 2019).
Depending on the above motives of the Mergers and Acquisitions of the global companies,
the rate of increment in a company’s policies can be measured, which stresses huge impacts
in the companies. There are certain aspects of various companies which are essential for the
companies to involve in international trade and commerce for being successful mergers and
acquisitions. Based on the views of Dalkir and Warren-Boulton (2018, p.37) mindset is the
most important aspect of being global Mergers and Acquisitions. Thinking big and
constructive is the essential part of being mergers and acquisitions, and also to obliterate and
eradicate the technocrat mindset for the betterment of the companies. As per the views of
Zheng et al. (2016, p.181), pricing and valuation of a company's products are tremendously
important aspects which must be stressfully concentrated by the managing committees of the
specific companies. Taking the global Acquisition move must be taken by the Chief
executive officer (CEO) and Chief Financial Officer (CFO) in order to analyse the cost
figures and benefit analysis of the companies for the acquisitions of the international and
overseas market.
An overseas company or an international company must abide by the local laws of the
particular country they are dealing in. they must be aware of the local laws and especially
local labour laws as it is the most essential for any industry or company to flourish. As per
the views of Bessler and Schneck (2016, p.327) labours are the only essential pillars in a
company for benefiting a company and boosting profit growth. A company must abide by the
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local trade union rules, and the companies must be aware of the regulatory issues of the
international and intercontinental destinations which must be operated with granting
permission and taking the help of local jurisdiction laws in order to establish sustainability in
the business process. According to Wanke, Maredza and Gupta (2017), the companies must
involve flexible decisions as they are tremendously essential for the companies to increase
productivity and brand value.
Figure: Worldwide M&A Activity over the years (In terms of Deal value in the US $ trillion )
(Source: As influenced by the views of Mauer and Xu, 2018, p.121)
The companies must adapt to change as it is evident for the companies to quickly adapt to the
diverse trend of the local consumers to adapt susceptibility in the acceleration of growth. As
influenced by the views of Bany-Ariffin, Hisham and McGowan, (2016, p.297) it can be
stated that Diversification in the tactics of marketing is also an essential tactic for
development of various company’s sales revenue and market demand. Based on the views of
Blonigen and Pierce (2016, p.43), it can be stated that a sustainable company must follow the
rules of successful development of the local area. The particular company take some steps for
the development of the local area, which involves providing job opportunities for the local
youth for the betterment of the economic condition of the local area. According to Lee,
Mauer and Xu (2018, p.121), the particular company also must involve in providing support
to the local people through donations and charity for developing the infrastructure of the local
area. The particular company must take part in the welfare of the communities for the welfare
of the local country.
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Figure 1: Worldwide M&A Activity over the Years (In Terms of Number of Deals
(Source: Based on the views of Zheng et al. 2016, p.181)
Mergers and Acquisitions started in 2003, and their growth and the market made a huge jump
and hiked its market values with the aid of recovery, merger as well as significant
acquisitions by the US federal record. The year 2007 witnessed the most amounts of total
dues of all global merger and acquisitions, figuring a massive amount of $4.27 trillion with
46644 numbers of deals in the global money market. However, the merger and acquisitions
activity took its second birth in 2010 and 2011 with 42655 numbers of deals at an enormous
amount of $2.48 trillion in the US. The top 10 mergers of the global mergers and acquisitions
market can be displayed below:
Rank Year Purchaser Purchased Transaction
Value (in US $
Billions)
1 1999 Vodafone
Airtouch PLC
Mannesmann 202.8
2 2000 America Online,
Inc.
Time Warner 164.7
3 2007 Royal Bank of
Scotland
ABN-AMRO
Bank
98.5
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4 1999 Pfizer Inc. Pharmacia 89.2
5 1998 Exxon Mobil 78.9
6 2000 Glaxo
Wellcome Pic.
SmithKline
Beecham Pic.
76.0
7 2004 Royal Dutch
Petroleum
Company
Shell Transport
& Trading Co.
74.6
8 2006 AT&T Inc. BellSouth
Corporation
72.7
9 1998 Citicorp Travelers Group 72.6
10 2009 Pfizer Inc. Wyeth 68.0
Table 1: Top 10 Global M&As of All Time (In Terms of Deal Value in US $ Billions)
(Source: As influenced by the views of Blonigen and Pierce, 2016, p.49)
There are some great examples from the above chart, which significantly portray the
importance of mergers and acquisitions for the betterment of understanding in international
companies who are mergers and acquisitions.
Vodafone after its rename of Vodafone Air Touch Plc. in June 1999 after its buying for an
amount of $60 million (shodhganga.inflibnet.ac.in, 2019), made an unlisted bid for
Mannesmann AG, which was German-based engineering as well as a telecommunications
company. The people of Germans protested against the company to resist the company’s
efforts. In the year 2000, the board of Mannesmann agreed for an increased offer of $112
billion. Later the time the conglomerate broke up, and all the manufacturing related operation
were sold off (shodhganga.inflibnet.ac.in, 2019).
The acquiring capacity of Time Warner by America Online Inc. (AOL) signifies and portrays
how innovation develops fast market growth and how they can be highly valued by the stock
market. The acquisition happened during a time period when the latest invented innovative
process of Electronic Commerce (e-commerce) had revolutionised the new and immense
amount of companies and media industry. The 1990s are inflaming stock market priced most
of the new companies with an exceedingly high amount (shodhganga.inflibnet.ac.in, 2019).
AOL was one of the significant companies of that time period, which provided service to
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internet subscribers. In January 1999, the company used its massive market value for
acquiring a grand media company at $ 164.7 billion which was tremendously famous at that
point of time it was Time Warner (shodhganga.inflibnet.ac.in, 2019). Two companies
combined and jointly inflamed themselves to become the largest media company in the
world. However, the partnership was damaged when the dot com bubble burst and
subsequently collapsed.
In the year 2007, the Royal Bank of Scotland (RBS) suggested an agreement deal which
portrayed the company’s urge to become infamous across the world
(shodhganga.inflibnet.ac.in, 2019). Leading a group which summed up Belgium's Fortis bank
and Spain's Banco Santander RBS clearly swept its rival company Barclays which
significantly had the urge to grasp the company of ABN. However, the partnership became
loose afterwards as credits debt threatens the home and RBS. possessed no alternative to turn
its face towards the UK taxpayers.
Pharmacia Corporation was bought for $89.2 billion in 2003 by a massive beast of the
international Pharmaceutical Industry Pfizer for a scope to inflame and outrage its products
base, customer base and produce new as well as latest medicines available in the international
market (shodhganga.inflibnet.ac.in, 2019). Jointly they created and developed the world's
most rapidly developing, inflaming and highly valued pharmaceutical organisations, pushing
Pfizer further to world-leader status for increased market value and increased the profit
margin for the development of the organisation.
US financial conglomerate Travellers’ Group merger and beast of banking industry Citicorp
developed the financial services company. which was the largest in the global market, was
again rebranded as Citigroup - which offered banking, insurance and investment operations in
140 countries. Citi was on the verge of selling its Traveller’s insurance and brokerage
services to the company’s numerous amounts of customers, and travellers were on the verge
of selling Citi's retail as well as important commercial banking to its numerous amount of
customers (shodhganga.inflibnet.ac.in, 2019). Meanwhile, after 10 years, the great merger
was caught in the credit crisis and was at the verge of ending. It was forced to merge with the
US authorities for getting out of its tremendous loss in the global money market.
AT&T Inc. made an announcement about its historic deal on the month of March in the year
2006, for grasping the market of the local US states local telephone market, BellSouth
Corporation was the merging company for an all-stock transaction. Approval came from The
Federal Communications Commission which affirmed AT&T's $72.7 billion as the acquiring
cost of BellSouth Corporation on December 2006 and there a new market giant of the US
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state phone companies emerged which stood at the topmost position of the
telecommunications industry like no other company until the old AT&T Empire collapsed in
1984 (shodhganga.inflibnet.ac.in, 2019). This merging example was exquisite and
tremendously significant as this was an acquisition that gave AT&T the control of 22 states
of the USA and numerous amounts of local customers of 70 million
(shodhganga.inflibnet.ac.in, 2019).
In order to understand the critical characteristics features the companies, a thorough
knowledge must be obtained about merging strategies followed by the successful
international mergers and acquisitions. As opined by Carroll and Mui (2008) the strategy of a
merger company is to significantly analyse the capacity of the merging company in order to
combine the different companies into one specific company combining the strengths of the
company. There are some significant characteristics of strong international mergers which
need to be classified. A successful merger of the company must undertake certain goals
which must be considered by a merger company for merging capability. A merger needs to
set selected aims and goals which significantly have to be followed for expanding the
territory of the business process, boosting sales rate, acquiring patents, technologies and other
assets for entering into a new market. A merger must be transparent to his job. Maintaining
transparency in business order is tremendously significant for any merger company for the
betterment of a particular company. This is important as it is necessary for any company to
maintain a clear approach towards business process and regulate the legal and financial terms
of the company. According to the opinions provided by Kayombo (1998) it can be
understood that Communication is another important process which is essential for the
company to maintain a good relationship with the merger company and communication is the
only way to maintain sustainability in business management. Maintaining a qualified
transition team is very important for any merging company as it is necessary to have skilled
and technically sound employees in a company. Based on the views of Carroll and Mui
(2008) it can be analysed that the financial situation of the company depends on its
employees, for this reason, maintaining trained and skilled employees is necessary any
merging company to maintain a smooth flow for the economic gathering of the company.
Legal regulations must be followed by every company and especially if it an overseas
company, for this reason, all specific companies must appoint qualified legal lawyers for
observing the legal conditions of the merging company.
At the time of mergers as well as acquisitions, international organizations such as Time
Warner and Pharmacia experiences a lot of issues regarding structural as well as cultural
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adjustments. Loss of strategic goal and proper mindset has been major issues in case of
having great initiative regarding merger as well as acquisitions of the business process. As
opined by Cyran (2019), proper mindset related to the effective way of handling business and
dealing with stakeholders and attracting shareholders is significant requirements of taking the
initiative related to the merger of the business process. However, it can be discussed that
without having a proper mindset and collaboration technique with the management group,
merger, as well as acquisitions of companies, cannot be maintained effectively. Loss of
mental stability and honesty are one of the major issues that can lead to breakage of mergers
between two international organizations.
Lack of strategic planning, as well as communication between employees and effective
training between the senior managers of international organizations, can degrade the status of
the organization (based on the views of Goldfarb, 2015). Due to which organizations
experience huge loss as well as the fall in the reputation of the company. Language can be a
major barrier to the merger of international organizations as the employees cannot be able to
learn the language of different countries. Due to which, international organizations can
experience communication gap between employees, which results in less productivity and
occurrence of conflict situation between employees (based on the views of Lewis & Inagaki,
2015).
In the merger of international organizations, the issue of culture is the greatest issues that
occur in an international organization which results in the failure of merger between the
organizations internationally. As opined by Inagaki (2016), due to cultural as well as
structural changes of organization, employee’s experiences a lot of stress as well as anger and
frustration. Along with that, confusion is created in the merger of international organizations,
which leads to employee’s frustration and disorientation. As opined by Cyran (2019), due to
that merger of international organizations fails by experiencing huge loss in income as well as
damage in reputation. Diversification is another motive of the mergers as well as acquisitions,
which is a common motive to sustain risk assessment and significant risk reduction, which is
tremendously beneficial for the mergers as well as acquisitions. As opined by the views of
Clark (2013) it can be stated that the mergers and the acquisitions examine the risk which is
involved or expected to reduce the risk and establish a correlation between the earning profit
revenues and profits of the merging companies.
For example, senior managers of Time Warner and Pharmacia experience a lot of cultural and
structural changes in the organization, which resulted in confusion and lack of information
among the members of the company. This situation can result in uncertainty and flow of
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negative emotions in the merged organizations which can lead to dissatisfaction as well as
lack of loyalty between employees (based on the views of Lewis & Inagaki, 2015). As a
result, organizations can experience a high rate of turnover and less productivity.
The major difficulty experiences national and international organizations at the time of
merger are lack of strategic planning of organizational operations as well as the incorporation
of new techniques (based on the views of Maharg-Bravo, 2019). For example, managers of
Time Warner and Pharmacia experience the problem of collaborative planning regarding
organizational operations, which lead to improper flow of work. Along with that,
incorporation of new technique into a valuable product lacks due to misunderstandings and
communication gap. Organizations experience a problem of providing effective training to
the employees, which can help in reducing the skills of employees as well as integrating new
technologies (based on the views of Mak, 2015). For example, Time Warner and Pharmacia
have been merged for the purpose of combining their technology and utilizing it to form a
unique and valuable product. However, due to lack of communication and information,
technology cannot be combined and utilized to form a valuable product which results in
failure of mergers as well as acquisitions (based on the views of Lewis & Inagaki, 2015).
At the time of mergers as well as acquisition, retention of an employee can be a major
challenge which can be resulted from the negative emotions of employees. Due to which lack
of leadership as well as job security can be experienced by the international organizations
(based on the views of Webb, 2019). Mergers and Acquisitions can spread dishonesty and
disloyalty among employees that can be a major challenge for the international organization
because employee turnover will increase, and less number of employees can result in less
productivity.
Conclusion
Thus, it can be concluded that merging occurs between two separate companies, most of the
comparable size to combine forces for the creation of new joint organisations where
theoretically, both the companies are equal mergers. Meanwhile, the acquisition means to
take over one entity by another. Mergers and acquisitions may be completed to expand the
company’s reach or gain market share in an attempt to create shareholder value. A brief
description of the mergers and acquisitions of the international money market have also been
pointed out for an understanding of the concept of merging and acquisition process in
business management. Depending on the above motives of the Mergers and Acquisitions of
the global companies, the rate of increment in a company’s policies can be measured, which
stresses huge impacts in the companies. There are certain aspects of various companies which
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