A merger involves the joining of two companies. Normally two companies join together either to survive or grow. Mergers are quite complex and almost always involve massive amounts of reorganisation of operations. In the 90s, extensive numbers of banks decided to merge in order to survive the price wars going on. The goal of each merger was quite clear: consolidate clientbase, expand and diversify risk exposure. Most of these almost always included some kind of electronic facet which required the development of “e-banking� or “electronic banking facilities and capabilities.�

A huge part of Mergers and Acquisitions, better known as “M & A� (read M and A), is company valuation. How do you put a price tag on a company? Some of the key factors in company valuation are:

Market Capitalisation Total Revenue EPS or Earnings per Share NAV or Net Asset Value per share Possible competitive bids

These indicators will give you a pretty good idea about how much a company is worth in the market. The NAV is a very good indicator of how much a company is worth, but it does not include earnings potential. You also have to be very wary of “competitive bids� from other companies that may have selected the company you are planning on merging with or acquiring as their target.

M&A operations are very much a “sales� type job. There are middlemen or intermediaries (brokers) that handle mergers and acquisition. Most companies have to redistribute ownership through issuance of “new stock� with the new name of the merging company or acquired company.

An acquisition is quite a different story. Acquisition is actually not a bad thing… a hostile takeover is. Hostile takeovers involve “ill-intentâ€? or “desire to eliminate the competition.â€? The reason it’s called hostile is because another company has decided to buy up the stock of other stockholders to reach a majority position in the company. Some acquisitions are not “hostileâ€? at all, but actually save the acquired company.

One of the key patterns to observe when two companies are involved in an acquisition or takeover are the following:

- In general, the stock of the acquiring company normally drops… the company will be worth less money because they will most likely have to free up cash for the takeover.

- The acquired company’s stock or “target companyâ€? stock will go up substantially, considering the fact that the company is definitely “worth savingâ€? to the acquiring company.

Another crucial part of the M&A process are the legalities involved in M&A. Most countries have antitrust laws which prohibit the existence of monopolies. Others protect “free competition� and “consumer protection�. These are very important factors to be considered when making a decision to take over a company.

Many “M&A transactions� or “deals� have gone sour due to legalities or litigation. Sometimes companies that are being investigated may not be attractive to some investors, while still others that are involved in court battles which they are likely to win makes them more attractive.

In modern-day countries, governments defend companies from being taken over by their competitors if there is even the slightest hint of a “conflict of interests� or the danger of creating a monopoly. If there is a dispute among the authorities, the merger normally is decided by a court of law which decides whether or not the merger is legal or not.

In any event, if the merger goes through, the winning combination develops into a new organisation, whether that was the original intent or not. You try and keep the strong points and learn from the weak ones. In any event, the process is long and arduous, but definitely worthwhile.