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Hostile Takeovers, Strategies, and Defenses

Mergers and Acquisitions

1) What is your opinion to the question below?

There are three main types of acquisitions: an acquisition of assets, an acquisition of stock, and a consolidation or merger. With an acquisition of assets, a company acquires another company by purchasing all of the company's assets. With an acquisition of stock, the company's voting stock is bought in exchange for shares of stock, cash, etc. A merger occurs when one company is absorbed by another company. A consolidation is similar to a merger except that in a consolidation a completely new company emerges. An acquisition is characterized as a vertical acquisition, a horizontal acquisition, or a conglomerate acquisition. A vertical acquisition occurs when a company acquires a company that's from a different part of the production process. A horizontal acquisition occurs when a company acquires a competitor. A conglomerate acquisition occurs when a company acquires a company in a totally different industry. A Net Present Value (NPV) calculation is typically employed by a company to determine if an acquisition should move forward.

References:

Bruner, R.F. (2004, May 31). Applied mergers and acquisitions. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=553561

Martynova, M., and Renneboog, L. (2006, February 1). Mergers and acquisitions in europe. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=880379

Required:

Below are some questions for discussion.

1. What are three reasons, in general, why firms are acquired? Please provide details regarding each of these reasons.

2. State and describe a hostile takeover that occurred between 2000 and 2008. Is that hostile takeover concerned a success or failure today? Please explain.

3. Name and describe three strategies that companies can employ to deter a takeover.

Solution Preview

1. What are three reasons, in general, why firms are acquired? Please provide details regarding each of these reasons.

There are several reasons as to why a firm would want to acquire another firm. One of the main reasons is for growth. This is a common occurrence that we hear about in the news. Company A is a major leader in their respective industry. In order to become even bigger and to try and monopolize the industry, Company A acquires Company B, who is the second leader in the industry. Some acquisitions of this type are successful and others are not. The government must approve acquisitions of companies over a certain size. This prevents from a monopoly taking place after Company A acquires Company B. If Company A acquires B and is able to create a monopoly, it strains the market because Company C would be at an immediate, significant disadvantage. In order to keep the markets and economy running as they should, the government intervenes on these types of attempted acquisitions.

A second reason deals with increased output and decreased cost reduction. If Company A makes a product similar to Company B and Company A has been having trouble increasing revenue and/or controlling costs, Company A acquires ...

Solution Summary

This solution discusses hostile takeovers and common strategies that can be used when a hostile takeover is likely. This solution also identifies and discusses a successful hostile takeover between the 2000 to 2008 time period.

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