March 16, 2015
University of Phoenix
The premise behind mergers and acquisitions in the business industry is simply put that the value of two or more companies combined will far outweigh the total value of the two or more companies as they stand alone. In a merger and acquisition, the smaller companies that are involved use their resources and financial stability or lack thereof in an effort to gain a greater advantage in their respected industry by combining their efforts to form a larger firm in order to achieve a common goal rather than to compete with each other for a share of the market. Mergers and acquisitions and corporate restructuring are a big part of the corporate finance world. In some cases because of the potential advantages stronger companies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. (Investopedia, 2015) This paper will discuss a few of the specific types of mergers and acquisitions that are used today as well as compare a variety of recent M&A’s and take an inside look at some of the advantages they produce.
Horizontal M&A’s This type of merger occurs between companies in the same industry. Horizontal merger is a business consolidation that occurs between firms who operate in the same space, often as competitors offering the same good or service. Horizontal mergers are common in industries with fewer firms, as competition tends to be higher and the synergies and potential gains in market share are much greater for merging firms in such an industry. (MBDA, 2015) This type of merger is a larger company’s attempt to create more efficient economies of scale. These companies manufacture similar types of commodities or contain extremely similar business activities and operate within the same basic industry.
Facebook & WhatsApp
Acquiring Company: Facebook, Inc. (FB)
Target Company: WhatsApp Inc.
Deal Value: $19.4 billion
Announcement Date: February 19, 2014 WhatsApp is a low cost messaging app and has 600 million users worldwide. Facebook has 1.3 billion users worldwide and 300 million of them use the Facebook Messenger app. The industry commission was worried that the two messaging apps were close competitors and their merger would harm competition in the messaging market. They ultimately found that there are enough mobile messaging apps that the merger wouldn't hurt competitors. The Facebook-WhatsApp merger was approved by US regulators in April. Although this is not Facebook’s most recent M&A, it is Facebook’s largest acquisition to date. Upon closing of the deal, all outstanding shares of WhatsApp capital stock and options to purchase WhatsApp capital stock will be cancelled in exchange for $4 billion in cash and 183,865,778 shares of Facebook Class A common stock (worth $12 billion based on the average closing price of the six trading days preceding February 18, 2014 of $65.2650 per share). In addition, upon closing, Facebook will grant 45,966,444 restricted stock units to WhatsApp employees (worth $3 billion based on the average closing price of the six trading days preceding February 18, 2014 of $65.2650 per share). As of February 17, 2014, Facebook had 2,551,654,996 Class A and B shares outstanding plus approximately 139 million dilutive securities primarily consisting of unvested RSUs. The Class A common stock and RSUs issued to WhatsApp shareholders and employees upon closing will represent 7.9% of Facebook shares based on current shares and RSUs outstanding. (Carsen, 2014)
Vertical M&A’s Vertical M&A’s are a merger between two companies producing different goods or services for one specific finished product. A vertical merger occurs when two or more firms, operating at different levels within an industry's supply chain, merge their operations. Most often the