1. Mergers and Acquisitions • BP-Amoco-Arco • Exxon-Mobil • Time Warner-EMI • National Westminster-Royal Bank of Scotland • GEC-Honeywell

2. Mergers and Acquisitions • What is a merger? A+B=C • What is an acquisition (takeover)? A+B=A • In economics the terms merger, acquisition and takeover are used interchangeably.

3. Acquisitions and mergers by UK industrial andcommercial companies: 1970-98 Expenditure (£bn) Number of companies acquired fig Source: Financial Statistics (ONS)

4. Cross-border majority mergers and acquisitions targeting an EU company Source: Based on information provided by Thomson Financial Securities Data

5. Classifying Merger Activity • Hostile or Friendly? • Contested not Contested? • Horizontal, Vertical or Diversifying (Conglomerate)? • Paid for by Cash, Stock or Mixture?

6. Motives for Merger • Profit • Cost savings • Growth • Diversification • Ease of entry to new market (geographic or product, home or abroad) • Market share

7. Who Gains? • Gains to victim accrue from any appreciation in share price assuming that bid and/or final price > market price. • Gains to acquirer accrue from expected performance improvements. • These are difficult to quantify - you will never know what would have happened to BP had it not acquired Amoco.

8. Economic Measurement of the Gains • Cost based - rare • Market share studies - rare • Profitability studies - reliability of accounting data. • Share price studies - time frame crucial.

9. Outcomes and Evaluation • The majority of studies show that the major beneficiaries of merger activity are the shareholders of the acquired firms. • This could be because managers are opportunistically pursuing growth. • It could also be explained by Roll’s hubris hypothesis.

10. Mergers • Prospective mergers must satisfy the relevant regulatory bodies (UK and EU in the case of the UK). • Referral often causes bidder to pull out. • Looser forms of inter-firm collaboration exist - joint ventures and strategic alliances. Are these optimal or transitional?