Mergers and aquisitions

The Russian University of Economics International Business School

2012

Mergers and acquisitions

Term Paper Corporate Finance

Student: El-Bashir Rita Group #5203 Professor: Fedunin A.S

 

 

Оглавление

Introduction 3

Chapter 1. The theoretical aspect of mergers and acquisitions 5

1.1 Centralization and concentration of capital 5

1.2 Friendly mergers 7

1.3 Hostile takeovers 9

Chapter 2. Applied aspect of mergers and acquisitions 11

2.1 The company's growth in friendly mergers and acquisitions 11

2.2 Current situation in the Russian market of mergers and acquisitions 16

Conclusion 19

References 20

Application 21

 

 

Introduction

Global integration processes taking place in all sectors of economic activity, could not pass by, and Russia. The processes taking place in the Russian market, suggest that many Russian companies are actively involved in the process of globalization, adopt foreign experience, and use the latest technology for business development. Competition in world markets is escalating, and while in Russia market saturation has not yet reached a critical point, many companies have felt the need to find ways to improve competitiveness and efficiency. Especially because of the possibility of development of the companies only due to the growth of the Russian consumer market at this time almost exhausted.

The long-term competitiveness of most Russian companies, despite the positive changes in recent years, is still low. At this stage, typical of competitive advantage can be considered as a high proportion of the domestic market and knowledge of specific markets. But these factors are timed. If they are not backed up by sustained competitive advantage, the situation can change quickly. If we look at more fundamental competitiveness factors - productivity, output per worker, the rate of new product development, quality, in the end - we can see that in almost all respects our company is seriously lagging behind their foreign opponents.

Even more problematic is the constant lack of financial resources. In this context, diversification can be disastrous strategy for many companies. And without that not the most effective Russian companies are several times smaller than their foreign competitors. This means that the investment of resources they have also several times smaller. Diversification only exacerbates the deficit. As a result, instead of creating a truly competitive and efficient develop several underperforming products or businesses. For the Russian business strategy of concentration and specialization may be a priority.

Therefore, the integration operations are a tool, without which it is difficult to imagine a dynamic business. They allow you to increase the value of the company, to create truly effective business processes, to obtain a unique competitive advantage, consolidating it with the company that is best suited for this purpose.

 

Subject

The object of this work is mergers and acquisitions. Along with friendly and unfriendly takeovers are considered - grips, raiding.

 

Object

Many of today's companies are achieving enormous success through mergers, and this is an indisputable fact. However, whether all mergers and acquisitions are successful and lead to further growth of the company? What factors influence the success of the future merged company? These questions are the subject of this paper.

 

Goal

The aim is to establish what factors and how to influence the success and continued growth of the combined company.

 

The degree of scrutiny

Many books and articles are written about mergers and acquisitions. They cover almost all aspects of the process; tell us about the history and types of mergers, the procedures for and more. There are enough literature which is written by Russians and the foreign ones about friendly and a hostile takeover. For example, "Mergers, acquisitions and restructuring of companies," Patrick Gohan (the book concerns how friendly and unfriendly mergers), "The Art of mergers and acquisitions," Reed Stanley Foster Reed, Alexandra Lajoux. A lot of Russian literature: "Raiding in Russia: the peculiarities of national capture" SN Anisimov, "Mergers and acquisitions: an effective strategy for Russia," S. Guardini, and others.

 

 

Chapter 1. The theoretical aspect of mergers and acquisitions

1.1 Centralization and concentration of capital

 

Development is one of the main objectives of each company. Development is achieved in many ways; I will discuss two ways of consolidation of the enterprise: the centralization and concentration of capital.

Under the capital understood as a set of goods, property, assets used for profit, wealth. Karl Marx gave this definition: "The Capital - this is not a thing, as defined, social belonging definite historical formation of society relation of production, which is represented in the thing and give this thing a specific social character. Capital - this is not simply the sum of material and produced means of production. Capital - is converted into equity capital goods, which by themselves are just as capital, such as gold or silver on their own - money. "

Under the concentration of capital refers to the process of consolidation of individual capital through the capitalization of surplus value. Surplus value here is the main source of growth capital. The concentration of capital is influenced by several factors. Firstly, the amount of surplus value by the number of workers who depend on the capital. From this it follows that the capitalist can increase surplus value, only increasing the size of their capital. Second, because of the development of capitalism and the growth of technology is increasing the minimum size of individual capital necessary to conduct business. Competition is another factor influencing the change in capital requirements. Tendency of the rate of profit to fall and forces the entrepreneur to increase their capital. However, the concentration of capital is a slow and very protracted process. On this occasion, Marx says: "The world still would have remained without railroads, though had to wait until the accumulation not bring some isolated capital to such an extent that they could cope with the construction of the railroad."¹

The second method of aggregation of capital, as noted above, is the centralization of capital, i.e. process of increasing the capital of one or a group of capitalists in the absorption or the addition of other capitals. The centralization of capital is different from the concentration of the source of its growth. If the concentration is mainly due to the increase of surplus value, the centralization due to the absorption of existing capital. The process of centralization of capital affects only the size of individual capital and does not change the public because it is a reallocation of capital among different owners. "Capital is in the same hands can grow to enormous size, because there, in another place, he left the set of hands. In every industry enterprises centralization would have reached its extreme limit, if all invested in capital it merged into one single capital. In any given society the limit would be achieved only when the entire social capital would have been bound together in the hands of a single capitalist or a single-capitalist society "(Marx). The centralization of capital takes place in two main ways: friendly mergers / acquisitions and hostile takeovers.

An example of consolidation of capital can serve as a financial-industrial group. In this case, the concentration and centralization of capital leads to the formation of multidisciplinary groups. They are more advanced form of consolidation of capital than simply increasing the size of the enterprise. Consumer associations provide many benefits to the owners of the enterprise. First, the economic entity is able to have approximately the same efficiency as a whole, regardless of the crisis in any industry. Second, multi-union saves on distribution costs in the supply of raw materials and companies that are part of the financial and industrial groups to each other. Third, the owner comes the introduction of technical improvements, technology integration companies. Fourth, the owners get the added benefit during economic downturns.

Activity structures with high concentration of capital in various industries, has positive aspects for the economy as a whole. They are reduced mainly to stabilize the country's economic development, better economic crises. However, if the crisis will cover such an organization, the consequences can be extremely unfavorable.

 

1.2 Friendly mergers

 

Merge companies recognized the emergence of a new society by transferring to him all the rights and duties of two or more companies with the termination of the latter. ²There are several types of mergers. The first type - is the merger of forms, i.e. association in which the merged company will cease to exist as an autonomous entity and the taxpayer. The new company takes control and direct management of all assets and liabilities to customers of companies - their constituents, then the last bloom. The second type - is the merger of assets, i.e. association with the transmission owners participating companies as a contribution to authorized capital stock of human control over their companies and conservation activities and the legal form of the latter. In foreign practice, single out one type of merger, which is in accordance with Russian legislation, called the "merger". Joining the society recognizes the termination of one or more companies to transfer all their rights and obligations of another company.³

Under the deal done by the absorption means to establish control over the business entity and carried through the acquisition of more than 30% of capital (stocks, shares, etc.) absorbed by the company, while preserving judicial independence society. Chapter HI.1 FZ on Joint Stock Companies regulates these transactions.

 

Classification of mergers

The main classification of mergers and acquisitions is based on the type of united action. According to this criterion, mergers and acquisitions are divided into:

• Horizontal;

• Vertical;

• Conglomerate.

 

Further, for simplicity we use the term "merger", referring to the activities of mergers and acquisitions.

 

Horizontal mergers involve association of companies operating and competing in one area of ​​activity. This type of merger provides a competitive advantage over other participants in this particular market segment due to economies of scale and capital increase. It should be noted that such mergers as restricting competition can be regulated by the state through a system of antitrust action. Among the most striking recent examples of mergers of this type may be noted the merger of banks Chase Manhattan and Chemical Bank, the union of food industry giants Guinness and Grand Metropolitan.

 

Vertical merger is the union of the companies belonging to different stages of a production process. At the same time takes the form of merger integration "forward" or "integration ago." For example, a factory for the manufacture of metal combined with the machine-tool plants ("forward integration", i.e. the association with the company relating to the next stage of the manufacturing process) or, for example with a company engaged in the production of iron ore ("integration ago," that is merging with a company the previous stage of the manufacturing process).

The most striking examples of the Russian practice - the acquisition of NK "LUKOIL" in 1998, controlling interest in the Romanian oil refinery "Petrotel", the formation of holding company "Siberian Aluminum" around the Sayan Aluminum Plant (which includes plants for the production of aluminum rolled products, manufacture of aluminum foil and aluminum cans) .

This type of merger provides increased technological efficiency of production, reduce transaction costs (members of the vertically integrated circuits supplying one another object of the intermediate production of a much lower cost or even free), better exchange of information within the combined company, which eventually leads to a significant reduction of intermediate inputs and, finally, the total cost of final products.

 

Conglomerate mergers involve merger of different, unrelated industries or geographic regions.

There are three types of conglomerate mergers:

• Merge to expand product range

There is a union of companies producing different products, having, however, similar symptoms and are able to expand the assortment of products in each other. Thereby greatly increasing the competitive edge formed structure. An example is the recent merger of Boeing, the world's largest manufacturer of civil aircraft and McDonnel Douglas, a leader in defense and space industry of the USA, as well as the union of two companies of the giant operating in the financial services industry - the world-renowned investment bank Morgan Stanley and having well-developed distribution network of Dean Whitter Discovery. As a result, was formed a strong financial structure, working together with private and large institutional clients.

• Merge for geographic expansion

In this case, the merged company, producing the same type of products, but operating in different regions. This scheme can significantly reduce risk through geographical diversification and increase its presence, and hence, competitive advantages, to provide themselves with additional demand for different geographic markets. As an example, the acquisition of the German Volkswagen Group 70% stake in Czech factory Skoda, which allowed him to take advantage of the fast-growing and promising Eastern European market.

• Strictly conglomerate merger

This merger involves merger of completely unrelated and unrelated industries. Example - is the merger of the tobacco company RJ Reynolds and food producer Nabisco Brands, resulting in a company RJR Nabisco.

 

1.3 Hostile takeovers

 

In the previous section discussed the concept and classification of friendly mergers and acquisitions. What makes them hostile takeovers? Who is involved in hostile takeovers? What types of acquisitions occur? What security measures businesses can take the company?

Thus, under the hostile takeover of the company or an asset means the establishment of this company or asset in complete control of how the legal and physical sense against the wishes of management and / or the owner of this company / asset.

Based on the definition we can identify the most characteristic feature of all hostile takeover: it is carried out in addition to someone's will, therefore, the target company (the owner of the asset, the largest shareholders, the company's managers) will always resist the actions of the aggressor.

By itself, a hostile takeover, carried out in accordance with the requirements of current legislation, is not something criminal. On the contrary, if such action to replace old, inefficient owner will come new and more successful, society will benefit from this. The state will receive more tax, the workers - the big salaries, and the enterprise will have a chance for further development. Vesting of assets in this sense is one way of financial and economic recovery of the company.

Despite this, it is necessary to note that in Russia the term "hostile takeover" has acquired a persistent association with the term "illegal occupation". This is due to the fact that hostile takeovers have almost always accompanied by a large number of violations of the law, many of which involve criminal liability.

Who is involved in hostile takeovers? It is clear that as the target can act almost any company.

 

Among the companies-aggressor we can provide 4 main groups⁴.

 

• The oligarchs and financial-industrial groups. Absorb the assets of the company and for themselves, for development or diversification of existing business empires or the creation of new industrial holdings. They are the most dangerous aggressors, because they have considerable financial resources, many times exceeding the capabilities of the target company. These players are actively using the administrative, judicial power and resources. An example would be the kidnapping of his wife and daughter, General Director of "Mostransagentstvo" in 2004. Himself head of the enterprise at this point insistently offered to sell his shares to the aggressors.

 

• Investment companies, for which absorption - the core business. Later absorbed by the company / assets are sold to the highest possible price to interested persons or retained for the diversification of their business. Typically, these players are not as dangerous as the oligarchs and the financial and industrial groups. They tend to act less rigidly, as an asset in respect of which are endless litigation, the problem is and sell it at the highest price possible. For overt aggression company data resorted to only when acquiring assets for themselves, or when the conflict began a corporate cannot be resolved more peacefully.

 

• Investment companies - intermediaries acting in the interests of the customer. Capabilities and tactics of these companies is mainly determined by the possibilities of their customers. They rarely rely on considerable power, judicial and administrative resources, as these tools are too expensive. Although there are exceptions: if the customer - a large oligarchic structure, the possibility of mediation seriously grow up.

 

• Investment companies - professional grinmeylery. They are the most sophisticated and least dangerous in terms of real absorption of the enterprise. This is due to their true goals - they want compensation. However, if grinmeyler acts as a participant in hostile takeover hiding for the time being the dominant player, or in the course of implementing its own strategy understands that surprised himself created the conditions for hostile takeover, its activities may pose a threat to the enterprise.

How can we classify hostile takeovers? In my opinion, it is possible to classify the degree of illegal actions of the aggressors in the capture of the enterprise.

The first group includes the absorption, when the invaders are trying not to engage in the activity for illegal acts. Such invaders are called white aggressors. They artificially create conflict situations, using manipulation technology, acquire on the basis of legitimate trades stocks, shares and assets.

The second group of seizures during which illegal methods are used: forgery, multiple resale of stolen assets, the armed seizure of buildings and enterprises, the organization of the illegal prosecution of business owners and its managers, blackmail, and even kidnapping to extort stocks, shares, of assets.

 

Chapter 2. Applied aspect of mergers and acquisitions

2.1 The company's growth in friendly mergers and acquisitions

 

The basic principle underlying the theory of mergers is the synergistic effect of the merger. Value of the company, formed through the merger exceeds the sum of values ​​of its components parts, i.e.

2 +2 = 5.

For example, if company A merged with company B, then the formula expressing this is as follows:

 

V (AB)> V (A) + V (B)

 

Where V (AB) - the cost of the new company, formed through the merger of A and B;

V (A) - A company's value;

V (B) - the value of B.

 

Thus, the essence of synergy is that the merger of two companies creates an additional cost of the combined company. Due to what is going on increasing the value of the combined company? It is obvious that the sources of increasing the cost of forming a definite benefit to the participants in mergers / acquisitions, which is the main motivating factor for the mergers and acquisitions. The sources of cost increases include: economies of scale, economies of vertical integration and complementary resources, unused tax benefits, etc.

However, we have shown in the group benefits on the basis of current activities and future development. There are allocated operational, financial, investment and strategic sources of growth companies.

 

Operating profit

To operational benefits, above all, include the savings due to the increase in activities. Participants’ integration typically has a number of similar functional units, such as accounting, finance, marketing, advertising, research and other units. Such duplication can be avoided by creating a uniform for the entire company instead of multiple control centers available. Thereby reducing costs for their content. The higher proportion of fixed costs, the greater the positive effect can be obtained. These savings can be especially significant if the companies involved in acquisitions, working in the same industry and country. For example, SBC Communications (formerly Southwestern Bell) has received considerable savings on costs, when absorbed Pacific Telesis. In the first two years after the absorption of SBC has cut production costs by more than $ 200 million, and tens of millions of dollars on bulk purchases.⁵

Also as part of operating gains distinguish savings from the direction of integration. In horizontal integration of the reduced operating costs by consolidating facilities and eliminating duplicative functions. With vertical integration increases the efficiency of overall production process, reduces transaction costs.

The next type of benefit - is the opportunity to increase resources and market presence by increasing the share of occupied and / or reduces competition. Members shall strive to increase their share of industry sales and marketing to enhance its infrastructure (distribution network) by effectively complement the participants. If there is a market segment where participants compete by price, then they will have the opportunity to conduct more effective pricing.

Also highlight the benefits of complementary resources. Often, participants have complementary resources. This opens up new possibilities and prospects. In this case there is a saving in the first place, due to the cost of these resources, and secondly, by reducing the time and extra costs for them. Some companies are able to independently establish the necessary elements, but a more effective way is to integrate with the company, which already has the item. Such resources may include: production, financial and administrative resources, investment opportunities and technology. It also includes R & D and economic effects of their acquisition / combination. Sometimes a company buys an absorbing target, because that is something particularly good at, and sometimes vice versa: the absorbing company sees that can significantly improve the company a target in a field in which she has succeeded. An example is the takeover ABN AMRO U.S. commercial bank Standard & Federal. Here took place and process improvement, and savings on expenses: mortgage operations S & F have been so successful that he eventually began to carry out all operations of this kind in the combined company.⁶

An example of the absorbing company, which develops processes in the acquired company, may serve as a U.S. company, a newspaper giant - Gannet. The company buying the target company immediately begins to improve the organization of production and sales, thereby reducing the time for delivery of newspaper readers. This increases the revenue Gannet.⁷

The process of developing new products can be improved so as to reduce production costs and expedite bringing to market. An example is the takeover of parts manufacturer Johnson Controls interior of the car Prince Corporation. Prince better understand the needs and expectations of consumers, thus producing highly profitable commodity. In Prince has also been well established product development, which allowed her to move from the design stage to mass production is almost twice as fast as in Johnson Controls, while maintaining a high level of quality. Absorbed Prince, Johnson was able to take advantage of it in the production of its products.

 

The financial benefits

These include the benefits of mobilizing financial resources, the use of surplus resources from the diversification of the economy in tax payments from lower financing costs. Let us examine them in more detail.

So, what is meant by the mobilization of financial resources? Quite often the shortage of mobile assets and low liquidity of participants leads to the decision to merge, because the merger is almost the only way to survive in a competitive environment. Scarcity of funds, stocks of raw materials and finished products can be bridged if the other party to the transaction the company has those resources.

The next type of benefit -is the use of excess resources. Possible situation in which the company generates a significant amount of money, but due to the specifics of its business or the specifics of the current economic situation is not able to use them. Revenues may increase if the combined company pick up a critical mass that will generate revenue not available to any one of the companies individually. Thus, a major Dutch bank ABN AMRO, a merger of ABN and AMRO, has received from other major banks offer jointly provide syndicated loans that never would have had no ABN, nor AMRO.⁸

Through diversification, you can also get some benefits. For example, a positive effect on welfare is the owner of stabilizing yields and reducing risk through diversification of production, work in different regions / countries.

With mergers and acquisitions is likely that companies can obtain tax benefits. Tax planning is intended to ensure that the combined company tax rate does not exceed the tax rates of the two companies before the deal. Typically, companies try not to disclose their know-how, as regulators tend to assume that those who used a completely legal ways of structuring and tax planning in order to avoid additional costs, simply use loopholes in the law. The purpose of the tax structure -is the maximum to avoid the cost of taxes. There are two essential elements - tax exemptions and reduced tax base. In the first case we are talking about the use of benefits of participants who cannot independently and fully use them. An example is the "popular" in the 90s in the Russian business environment, organizations of disabled persons, as well as enterprises using simplified tax system.⁹

Reducing the tax base allows the use of large depreciation or significant losses of previous years to reduce the tax base. Taxpayers who have incurred losses (losses) in the previous fiscal period or in previous tax periods, may reduce the tax base of the current tax period for the full amount received by them or by the loss of this amount (transfer loss in the future). The taxpayer shall be entitled to transfer the loss to the future in a period of ten years following the same tax period, which produced the loss. In the event of termination of the taxpayer by reason of the reorganization of a taxpayer-transferee has the right to reduce the tax base in the manner and conditions set forth in this Article, the amount of damages received by the reorganized agencies until the reorganization.¹⁰

In addition to these benefits the company through the integration of lower financing costs. Cost of capital for each participant individually, as a rule, above. This is due to provision of loans assets of only one party, while the obligations of the newly formed party to ensure that the assets of partners. As a result, the risk to lenders and, therefore, their claims at a cost lower. Sometimes it happens that the absorption of the company being consolidated to such an extent that is able to combine working capital surplus of funds, as well as cover currency positions by offsetting obligations. These benefits can be substantial, when Credit Suisse Group has teamed up with Winterthur, 10% of the predicted income of absorption were obtained by reducing financing costs by optimizing capital management.

 

 

 

Investment gains

Sometimes mergers and acquisitions take place, because the deal promises of certain investment gains. Due to the growth of what can be achieved in this case?

Primarily due to acquisitions. This may be the acquisition of both tangible and intangible assets (such as the acquisition of a successful brand, various licenses and lease rights to the property).

It is also certain benefits promised purchase of tools of control over other party. This takes into account the company acquired ownership stakes / shares, instruments may continue to acquire control of another party (such as a commitment on his part). Or consider the purchase of the company - the registrar, the register of interest of the company. Sometimes absorption carried out in order to obtain control rights, which are absorbed in the company of another company. This is called a double integration. In practice, the situation when there are parallel and venture company created for the ownership rights of control over the enterprise. Russian example may serve as OJSC "Surgutneftegas" and JSC "Surgutneftegas".

Benefits can be obtained with the release duplicated assets and their implementation. For example, companies can get rid of non-core assets. Thus, the assets are sold, allowing for further savings on property tax / land tax in the implementation of buildings / land.

It is possible that the company has some free resources, but it does not have projects of their placement. The absorption in this case is regarded as an investment project to accommodate the excess funds. Companies that have invested in their funds authorized company shall be entitled to receive dividends.

 

Strategic Benefits

These include the benefits of improved coordination of business processes and improve governance, management of the acquisition (of a particular manager or the whole team), from the expansion of customer base, from savings on R & D and others.

Let's start with the coordination of business processes and increase management efficiency. Practice shows that there are always members who are able to reduce costs and improve financial performance by reorganizing the management staff, internal business processes, increase professional level of employees, etc. All this increases the effectiveness of the organization, which can not affect its profitability. Sometimes for the same purposes, the company is seeking services of a manager or a whole team, who showed their competence in managing the company a certain type or in certain situations. Company to attract experienced executives and professionals acquire the company where they work.

With the expansion of its customer base as a result of the merger have the opportunity of digging, especially in situations of growth inhibition and the threat of losing the market. Clients are often treated as an intangible asset of the company, bringing considerable revenue. To meet customer requests and to increase their own income, companies are integrating with organizations that work in other geographic regions. The company gets a chance to enter new markets, expand production and customer base.

Sometimes integration is considered as venture capital investment, the essence of which consists of placing long-term investment, with a relatively high risk, respectively, in anticipation of higher profits. Projects are focused on the practical use of technological innovations, the results of scientific achievements. The venture business is the basis for some market participants for corporate control, and they use it processes in its core business. Before exercising such investments and to enter the market participants are able to conduct market research from the inside by means of integration with the parties represented in this market. You can call it one of the first stages of market entry. Another way to enter the market may be to integrate with Party with a known name, reputation, history, etc. Such a partnership is beneficial both to the initiator, in terms of reaching a new level of business, and for an "authoritative" partner as the acquisition of technology and experience.

In practice, sometimes there are merger / acquisition undertaken for its own sake, for the sake of a financial empire, acquiring importance in the economic community. This factor leads to build the economic base and the transformation of the base of political power.

 

2.2 Current situation in the Russian market of mergers and acquisitions

 

Consider the situation in the Russian market of mergers and acquisitions.

During the first nine months of 2008 was 7% decrease in the number of transactions compared to same period of 2007 - 888 transactions (951 deals against in 2007.). The value of the Russian market for mergers and acquisitions fell by 3% to $ 91.9 billion ($ 94.6 billion in January-September 2007). Significant activity was noted in the transactions of Metallurgy and Energy - 52% of the value of the market. Leader in the number of transactions each year continues to be a service industry and trade.

 

Market growth drivers are:

• One of the largest M & A transactions in Russia: RUSAL - Norilsk Nickel.

• The restructuring of energy companies in 2008, completed the sale of state-owned and placement of additional emission at TGC-1, TGC-3, TGC-7, TGC-8, TGC-9, TGC-10

• The volume of acquisitions of foreign companies, Russian increased from $ 12.7 billion to $ 16.6 billion (Rosbank, TGK-10, RESO, AvtoVAZ, Polymetal).

• Evraz Group, Severstal and TMK performed the acquisition of foreign assets.

 

Factors reduce the market are:

• Reduce the volume of cross-border transactions in the III quarter of 2008 - 55 transactions totaling $ 7.3 billion, compared with 74 deals for $ 18.6 billion in 2007.

• Disruption / transfer of a number of transactions (OGK-1, Tape, John Maneely Company, etc.)

 

Statistics for the period from January to September 2008¹¹

• 888 transactions - a quantitative assessment of mergers and acquisitions market in Russia.

• $ 91.9 billion - the valuation of mergers and acquisitions market in Russia.

• $ 121.1 million - the average transaction price in Russia

• 125 deals worth more than $ 100 million

• 1% and 2% of the value of quantitative volume of the market is to buy shares in the management of

• 34% of the value and quantity of 5% of the market occupied by transactions in the metals sector

• 26% cost and 47% of the quantitative amount of the market occupied by the transaction in the form of a full acquisition (100% of shares)

• 12% of the quantity and 19% of the value of the market are acquiring foreign companies, Russian

 

 

Cost characteristics

The average transaction of value in January-September 2008 was $ 121 million, which is comparable with the results of the same period of 2007.

 

Graph #3

 

In terms of value, the integration process can be divided into groups. Mega integration - a deal that cost is greater than or equal to $ 1 billion, the largest - from $ 500 million to $ 1 billion, above the average - from $ 100 million to $ 500 million, the average - from $ 50 million to $ 100 million, below the average - $ 10 million to $ 50 million, a small $ 1 million to 10 million mini-integration - less than $ 1 million (see Chart 1 and 2 in Appendix)

Mega and major integration took 6% quantitative and 70% of the value of the market. The largest proportion of small quantitative transactions – is 27.8% of total transactions.

The decisive importance of the transaction value of over $ 500 million (70.60% of the total cost share of transactions) in the presence of high-intensity trades for less than $ 50 million (76% of the total number of transactions). (See table 1 in annex.)

Industry-specific processes and ethnicity M & A

Number of deals is leading the services and trade (15.30%), followed by telecommunications (13.70%), food industry (11.30%) and construction (11.30%). In terms of the cost allocated metallurgy (34% of the total value of all transactions) and energy (18.3% of the total value of transactions). (See table 2 in annex.)

In summary, the market situation is as follows: to quantify the market is dominated by small deals in the telecommunications and services, and lead to cost share in metallurgy big deal, and energy industries.

 

 

Has the crisis in the market for mergers and acquisitions?

Certainly, however, despite the stock panic, September M & A market as compared to August rose by nearly 106.2%. Most likely this growth has affected the opening of the new business season, when business people have completed the planned transaction. And they are not corrected their plans with the crisis in the economy. This is confirmed by the fact that as soon as business owners who are ready to sell, take these phenomena into account, the volume of transactions was sharply reduced.

Already in October the volume of Russian M & A market has decreased in relation to September of 12.1% (to $ 5.0 billion), and in November - has fallen by 52.6% compared with September. Total - the market for two months lost 64.7% of its volume!

 

Conclusion

 

Managers of companies around the world pay special attention to the integration process and the search for effective institutional forms of association. In the modern corporate governance key to victory in the competition is mergers and acquisitions. For some, this is the way the market gains, for others - access to financial resources. Become apparent that it allows quick integration to achieve their goals and dynamically react to changes in the environment and get a multiplier effect, inaccessible to the company alone.

The work revealed that the value of the company, formed through the merger exceeds the sum of values ​​of its component parts. Sources, which provide added value, are: economies of scale, economies of vertical integration and complementary resources, unused tax benefits and some others. Also, there are sources which, while not increasing the value of established company, but lead to more efficient use of company resources to its growth. These include sources such as better coordination of business processes and increase management efficiency, expand its client base.

World experience shows that fundamental to the success of leading the way to becoming a competitive industrial structures - the concentration of capital and production capacities, integration of technology vertical or horizontal competitive basis. This fact is of fundamental importance and is particularly relevant in terms of our economy, which will find its way to achieve a highly competitive position in the global market. Also in today's economic crisis, one way to save the company may be mergers and acquisitions.

However, since the Russian legislation on mergers and acquisitions are not clearly and in detail the phenomenon of regulated capture has become widespread. In Russia there are no civilized rules of the settlement of corporate conflicts, so the bulk of the conflict takes place "on the brink." The parties shall use in its fight almost any means at hand. The only limiting factor is the ethical component. Recently, this factor was added to the risk of criminal prosecution. The current practice is a powerful deterrent in terms of increased investment activity in the normal sense of the word. No one shareholder, even having a controlling interest of participation cannot be guaranteed by the fact that his business will not be absorbed without his consent.

 

References

1. Federal Law of 26.12.1995 N 208-FZ (as amended on 30.12.2008) "On Joint Stock Companies"

2. Tax Code (as of January 15, 2009), Omega-L Publishing, 2009

3. Iontsev MG "Corporate takeovers: mergers, acquisitions, grinmeyl" Publisher "Axis-89", 2008.

4. K. Marx, "Capital" v.3

5. "Mergers and Acquisitions», Harvard Business Review, Alpina Business Books publishing house, 2007

6. www.mergers.ru

7. www.ma-journal.ru

 

Application

Graph #1

Graph #2

Table 1. The cost classification.

Форма сделки	Количественная доля	Стоимостная доля
Мега	2,40%	50,40%
Крупная	3,60%	20,20%
Выше среднего	11,40%	20,00%
Средняя	6,80%	3,50%
Ниже среднего	26,00%	4,90%
Небольшая	27,80%	0,90%
Мини	22,00%	0,10%

 

 

Table 2. Classification by industry

Вид сделки	Количественная доля	Стоимостная доля
Нефть, Газ, Уголь	4,50%	5,80%
Лесная и целлюлозно-бумажная	1,40%	0,10%
Лёгкая промышленность	0,30%	0,10%
Энергетика	3,90%	18,30%
Телекоммуникации	13,70%	10,10%
Машиностроение	5,70%	3,30%
Пищевая промышленность	11,30%	3,10%
Финансы, инвестиции, страхование  и кансалтинг	8,70%	7,40%
СМИ, Спорт, Реклама	9,30%	1,30%
Услуги, Торговля	15,30%	7,80%
Транспорт	5,20%	2,00%
Строительство	11,30%	4,80%
Химия, Фармацевтика	4,30%	2,10%
Металлургия	5,10%	34,00%

 

¹ Marx K.Kapital. т.3, гл.48, p. 886-887

² The federal act from 12/26/1995 N 208-FZ (ред. From 12/30/2008) "About joint stock companies", item 16, item 1.

³ The federal act from 12/26/1995 N 208-FZ (ред. From 12/30/2008) "About joint stock companies", item 17, item 1.

⁴ Iontsev M. G «Corporate captures: merges, absorption, гринмейл», Publishing house "Ось-89", Moscow. 2008, with. 38-40

⁵ Harvard Business Review, Merges and acquisition, with. 54-55.

⁶ Harvard Business Review, Mergers and acquisition, p.57

⁷ Harvard Business Review, Mergers and acquisition, p.58

⁸ Harvard Business Review, Mergers and acquisition, p.57

⁹ The tax code of the Russian Federation (as of January, 15th, 2009), Publishing house the Omega-l, 2009, item 381, item 3.

¹⁰ The tax code of the Russian Federation (as of January, 15th, 2009), Publishing house the Omega-l, item 283.

¹¹ www.mergers.ru, the Project Mergers.ru / Merges and acquisition in Russia.

MOSCOW @2012