MERGERS AND AQUISITIONS

Is a corporate strategy that allows a company to combine its assets to another

company or to acquire another company. Merger is when two companies combine to
form another company. On the other hand, acquisition is taking over or taking a part
of a company. While, in the case of merger it seems that the share in interest of two
companies are equal though it is not. FOr instance, in 2013 the Philippine National
Bank (PNB) and Allied Bank announced its merger, though in the end it is in PNB
who became the surviving company. This is why to avoid issues on what to call a
business combination strategy it is called M&A.

: The Mergers & Acquisitions are one of the different ways the companies are
combined. Yung kabuuan ng kumpanya at lahat ng kanyang mga major businesses
assets ay pinagsasama through financial transactions between two or more
companies. The similarities of Mergers and Acquisition is both company combined,
also their strategic objective is to aim to achieve growth, synergy (expand the
capability of a company), or competitive advantage. Other than their similarities,
the have also differences when it comes to consolidation.

The Merger is the combination of to companies to form a single new entity, minsan
kasama dito yung mutual agreement and shared ownership. On the other hand,
the Acquisition, yung isang kumpanya purchases another and absorbs it, often
resulting in the acquired company losing its independent. Pagdating sa Nature of the
Transaction nila, the Merger generally seen as a collaborative or “equal” partnership.
Sa Acquisition, often perceived as a dominant company taking over a smaller or
weaker one. (yung mas maliit na kumpanya yun yung dapat magpasakop sa
mas malaking kumpanya.) Pagdating sa Power Dynamics, In Merger, equal
partners usually share control and ownership, while in Acquisition, the acquiring
company assumes full control over the acquired firm. In their Legal Outcome, the
merger, the both companies dissolve their previous legal identities to form a new
entity. While sa Acquisition, the acquiring company retains its identity, while the
acquired company (o yung biniling kumpanya) ceases to exist as an independent
legal identity.

M&A became a popular business strategy for some companies to expand and for
other to save from distress. In M&A, it allows the company to increase its revenue to
cover for the expenses, especially the fixed costs, or increase its asset base or even
capture a market share or control the supply chain.

The following are the top reason why companies entered into M&As:

❖ Manage the cost of capital (to access more favorable financing options or
consolidate financial resources, they can also improve their credit rating,
reduce borrowing cost and better allocate financial resources.)
 ❖ Expansion of scale (helps to achieve economies of scale by increasing
production capacity, reducing per-unit costs, or consolidating operations)
❖ Diversity for expanded market coverage (enable the firms to enter new
markets and reduce dependence on a single product, service, or region)
❖ Widen access in the industry (can strengthen a firm’s position in the supply
chain, expand customer bases, or enhance industry influence)
❖ Technological advancement (allows the companies to acquire cutting-edge
technology or research and development capabilities instead of them
internally, which can save time and resources.)
❖ Tax management strategies (Companies may also restructure to reduce their
overall tax liabilities)
❖ Legal strategies (The companies can also protect intellectual property or
reduce competition-related legal challenges)
❖ Control over supply chain (Acquiring suppliers or distributors ensures better
control over the supply chain, reducing dependency on third parties and
improving efficiency.)

In M&A there should be a (1) company must be willing to take the risk and vigilantly
make investments to benefit fully from the merger as the competitor and industry
take heed quickly; (2) multiple bets must be made to maximize the opportunities
available; and (3) the acquiring firm must be patient in the realization of its
investments.

Key Takeaways:

❖ Mergers and acquisitions (M&A) refers to the ways businesses, or

their assets, are consolidated or combined.
❖ In an acquisition, one company purchases another outright.
❖ A merger is the combination of two firms, which subsequently form a
new legal entity under the banner of one corporate name.
❖ Mergers and acquisitions require the valuation of a company or its
assets to decide how much to pay for those assets.
❖ M&A can be financed through a combination of debt, cash, and
stock.

M&A According to Form

M&A maybe classified according to how they are formed. It is either

through absorption or through consolidation. M&A by absorption is done
when a company takes over another company, normally the latter are in a
more disadvantageous position. This is like when Philippine Long DIstance
Telephone Inc. absorbs Digitel Telecommunication Philippines.

M&A through consolidation is when two companies combine its assets

and/or restructure their debt profile. Most of the M&A through consolidation
are done by financing institutions like banks. In 2019, Banko Sentral ng
Pilipinas has announced its plan to launch programs that will encourage
more mergers through consolidations among rural banks.

: Nangyayari ito kapag ang isang kumpanya na mas malakas o Malaki ay

binili ang isang kumpanya. The acquired company o yung biniling
kumpanya ceases to exist as a separate legal entity and is absorbed into
the acquiring company. The latter assumes all assets, liabilities, and
operations of the absorbed company.

 One Company dominates the transaction

 The absorbed company loses its dependent identity
 Often occurs when the target company is in a weaker financial or
operational position.

M&As according to Economic Perspective

M&A classification may also be dependent on its economic perspective.

These M&A may be classified into horizontal, vertical or conglomerate.
Horizontal M&A is when two firms in the same industry combined. An
example of this is in 2000, when Jollibee Foods Corporation acquired
Chowking Food Corporation. These two are players in the fast food
industry.

Vertical Merger is when two companies merged coming from different

stages of production or value chain. These occurs when a supplier
purchased its costumer or vice versa. Conglomerate on the other hand are
M&As from completely unrelated industries.

: Can also be classified based on their economic perspective, specifically

pagdating sa relationship between the merging companies and their
positions in the industry or market. There are three main classification:
Horizontal M&A; Vertical M&A; Conglomerate M&A.
The Horizontal, this types involves the merger of two companies that
operate in the same industry and are often direct competitors. Ang goal ay
para magkaroon ng gain market share, mabasawasan ang competitors,
and achieve economies of scale, or enhance product offerings. The
Vertical, this type involves companies from different stages of the
production process or value chain merging. It often occurs between a
supplier and a customer, allowing for better control over supply chains,
reduced costs, and improved efficiency. The Conglomerate, this type
involves the merger of companies from completely unrelated industries.
The purpose may be diversification, risk reduction, or entry into new
markets.

M&As based on Legal Perspective

M&As can also be classified according their legal perspective like Short-
form M&As, Statutory M&As and Subsidiary M&As. Short-form M&As is
when parent purchase more interest from its subsidiary. Normally a parent
companies that has about 90% ownership to 100% is a Short-form M&A.
Although in the case of Jollibee Foods Corporation (JFC) and Greenwich
Pizza Corporation (GPC). JFC has 80% ownership in GPC but decided to
buy-out their partner Green Foods Franchising in 2004 and changed the
name of GPC to Fresh N’ Famous Inc.

Statutory M&As is when a company combines with another where the

company, the acquirer, retains its name. In 1999, Far East Bank and Trust
Company merged with Bank of Philippine Island (BPI). Today, BPI is the
surviving company after the statutory merger.

: Defines how the ownership and governance of the involved entites are
reorganized. Three classifications are given: Short-Form, Statutory,
Subsidiary M&A.

Short Form, this occurs when a parent company already owns a

substantial majority of a subsidiary and purchases the remaining minority
interest to gain complete ownership. This process often bypasses the need
for shareholder approval due to the parent company’s dominant ownership.
Statutory, This type occurs when one company acquires another and
mergers their operations. The acquiring company retains its legal identity,
while the acquired company ceases to exist as a separate entity. The
surviving company assumes all assets and liabilities of the acquired firm.
One company is the clear acquirer, and the other dissolves. The surviving
company retains its name and legal identity.

Subsidiary M&A, this occurs when an acquiring company merges with or

acquires another company but allows it to continue operating as a
subsidiary with its own distinct identity, branding, or operational focus. The
subsidiary becomes part of the parent company’s corporate structure.

In Subsidiary, the acquired company remains a separate entity but under

the parent’s control; Often used when the acquired company has strong
brand equity or a specialized market presence; The parent company owns
controlling stake (partial or complete)