The Financial Controller and CFO's Toolkit, 3rd Edition

Chapter 21Takeovers and Mergers

OVERVIEW

The pursuit of growth through takeover or merger has made a small, select group very wealthy while diminishing the wealth of a vast number of shareholders. CFOs and controllers have a moral dilemma here and only they can decide what is appropriate. In many cases, the forces are huge to transact the takeover. This chapter explores why so many takeover and mergers, which have been based on perceived synergies and cost savings, fail, and if involved in one, why you need to move on before reality strikes.

It is often quoted, but even great leaders seem to forget, that “history has a habit of repeating itself.” Company executives, directors, and the major institutional investors (whose support is often a prerequisite) need to learn the lessons and think more carefully before they commit to a takeover or merger (TOM).

REASONS FOR A TAKEOVER OR MERGER

To understand the forces at play, you need to look at the various reasons for a takeover or merger (TOM):

1. Purchasing future profits from either a related or diversified sector. Here the new subsidiary is left to grow in their own way. This method is characterized by successful investment companies like Berkshire Hathaway.
2. Purchasing to gain synergy. Here, the argument is 1 + 1 = 3. These are the mergers/ takeovers typically targeted by investment banks and have a history of failure.
3. Purchasing for increased market share. Driven by aggressive executives, the cost frequently outweighing the ...