Why Many Takeovers Fail

Why Many Takeovers Fail

I Study the active vocabulary and focus on Ukrainian equivalents of English words.

merger – злиття

takeover  – поглинання

corporation  – корпорація

horizontal integration – горизонтальна інтеграція

vertical integration  – вертикальна інтеграція

lateral integration – горизонтальна інтеграція

fail  – зазнавати невдачі

synergy  – взаємодія

shareholder – акціонер

 debt – борг

revenue – дохід

tough  – тяжкий

share price  – ціна акції

affect – впливати

equity  – власний капітал

issue  – випуск

clash – зіткнення

corporate culture – корпоративна культура

priority – пріоритет

incompatibility  – несумісність

significant – значний

majority   – більшість

approachable  – доступний

swallow  up – проковтнути

confectionery  – кондитерський

brewing  – пивоваріння

skilled worker – кваліфікований працівник

human capital – людський капітал

bidding  – торги

hindsight  – заднім числом

curse – прокляття

over the odds  – надмірно, занадто багато

market share  – відсоток ринку

in the long run – в довгостроковій перспективі

doomed  – приречений

humor – настрій

virtually – практично

timing  – вибір часу

familiar – знайомий

II Vocabulary focus. Study the words and  word combinations, check your understanding using flashcards, practise their translation, spelling. Check your knowledge in the test. Play matching vocabulary game (match words to their translations to make cards disappear)  and save the planet from asteroids by typing in correct translation of the words.

III Watch the video and fill in the gaps with the words from the list

Shareholders; corporations;  costs;  optimistic; big;  debts; horizontal;  minutes;  revenue;  financial;  takeovers; dollars;  loan; mergers

Hi there! Mergers and 1)______ they’re always in the news. Lots of 2)______ deciding to become one in a process of either 3)______ or vertical or lateral integration for example. In fact the reality is slightly less 4)______. The majority of 5)______ and takeovers between businesses, between corporations fail to achieve the expected cost and 6)______ benefits or synergies that are put forward to 7)______ ahead of the merge or the takeover. So let’s spend a few 8)______ thinking about why that might be the case.

One of the key reasons why mergers, many mergers and takeovers fail is because of 9)______. There are often huge 10)______ costs of funding a takeover, especially if you’re buying a business worth many billions of 11)______ or pounds. And the deals that allow this merger or takeover to happen may rely heavily on 12)______ finance. And that can leave a 13)______ level of debt which needs to be repaid and which is tough to repay if the merger and takeover doesn’t achieve the 14)______ and revenue benefits.

IV Watch the video. Choose the correct option to complete the sentences.

A second major blame/problem/dilemma with companies coming together or integrating is the problem of integrating sisters/stems/systems. So businessmen/busy/businesses might have extremely different technology systems that are expensive and quite difficult to bring together/greater/getting greater. A really good example is in the slide that’s eBay and Skype. So eBay bought Skype for 2.6 billion dollars in 2005 only to sell the company four years later for 1.9 billion/million/biling. And the key reason for that was they found it really tough to integrate their technological systems successfully/faithfully/secondly and quickly.

 The share price/piece/part can also be affected negatively by a takeover. So the need, for example, to raise fresh equity through rights issue to takeover/fund/demand the deal can have a significant negative/positive/neutral effect on the company’s share price. Over the three to five years after a merger or takeover deal on average the share price of the adding/acquiring/aquariums company, a company that’s buying the other company, tends to fall/grow/ increase.

Fourth key point is really important. Professional/Personal/Culture clashes. So many mergers just don’t achieve the enhanced shareholder/client/price value because of, because of clashes of corporate culture, priorities, and also clashes between companies/personalities/professors within the business. These clashes mean there’s a failure to find the all-important synergy gates. What’s really important/necessary/interesting to stress in the evaluation is that there’s often a cultural incompatibility particularly when you’re going to merge or takeover between two companies from different market segments/ cities/countries.

Fifth point is really quite significant. So business that becomes bigger may actually lose some companies/ prices/customers who prefer to be buying from the smaller, perhaps more independent, slightly more approachable business/person/partner. So you might, for example, get a big/small/private chocolate company or a craft beer business that is swallowed up by a big industrial confectionery or brewing conglomerate/syndicate/partnership. And the original consumers of the products don’t really like that. They prefer to buy from the smaller well-known brand/conglomerate/shop. And they don’t want to buy goods/food/drinks and services from the bigger company. We often see, for example, some skilled managers/workers/directors deciding to leave because after the takeover there’s a loss of human capital/salary/wages. They prefer again to work with a bit more autonomy and purpose for smaller businesses.

V Watch the video. Fill in the blanks in  the sentences with the words you hear.

Point six is critical in many 1)______and takeovers especially when companies get involved in a bidding war. We see, with the benefit of hindsight to be fair, we see something called ‘the winners curse’. Now ‘the winners 2)______is when a business pays over the odds to get that all-important 51% market 3)______and then ends with little very little gain if at all, in the long 4)______. And a good 5)______of this was the just the doomed 6)______of ABN Amro by World Bank of Scotland in 2007. Management humors, 7)______ego caused them to spend massively over the odds for a business and they ended up having to 8)______it for virtually nothing a couple years later.

Bad timing is another key 9)______. Mergers and takeovers that take place towards the 10)______of a boom could often be damaging for both businesses, not least because the valuations become out of kilter either way we look at them and you end up paying way more than you expected to do.

So there are many 11)______why mergers and takeovers fail to achieve the shareholder returns. Indeed, although we do see big mergers and takeovers, many don’t actually happen in the end. And you’ll be familiar particularly today if you do micro this year, that there’s also been a significant increase the number of de-mergers, de- mergers between 12)______. And we cover that in a separate topic video. So just type in ‘de- merger’ into our YouTube channel, and we’ll see a video on that. Okay, so these are some of the key reasons for failed mergers and takeovers.

   

VI Watch all the parts of the video and answer the questions.

 How many reasons for the failures of mergers and takeovers are mentioned in the video?

1. What types of integration are mentioned in the video?
2. What kind of debts can create problems for the companies during mergers and takeovers?
3. What types of integrating problems can companies have? Can you give examples of companies that had such problems in their takeovers and mergers?
4. What are clashes? What kinds of clashes can companies have during mergers and takeovers?
5. How can takeover process affect share prices ?
6. Why can a business lose customers as a result of a takeover?
7. Why is the problem of human capital important for the success of mergers and takeovers?
8. What is ‘winners curse’? Why does it happen during takeovers and mergers? Can you give any examples of the companies that lost money because of ‘winners curse’?
9. Why is timing important for successful takeovers and mergers? What period of time is not good for the companies to think about mergers and takeovers?