MERGER AND ACQUISITIONS

Merger and Acquisitions

Name of writer

Name of Institute

Merger and Acquisitions

Introduction

Merger and Acquisitions

The term merger and acquisition (M&A) are often used interchangeably while the terms merger and acquisition hold somewhat different meaning. Although each transaction differs in style, during this literature review, no empirical evidence could be found that tested the differences between mergers and acquisitions noting transactional and integration differences while both share a common approach towards to the activity (Andrade, 2002,, 1).

Jemison and Sitkin (1999) contend that M&As are strategic, complex, occur less than routine, multi-faceted that has many moving parts, that can impact all stakeholder groups whose involvement is temporally and functionally divided. Jemison and Sitkin (1999) offer the following definitions of mergers and acquisitions. When one company takes over another and has a controlling interest in the minority organization the purchase is called an acquisition. An acquisition is also known as a takeover or a buyout where one organization is purchasing another company for similar reasons as a merger. A merger, typically a voluntary action, occurs when two organizations agree to bring their respective assets together and move forward as a single larger company rather than be owned and operated separately. Marks and Mirvis (1998) define a merger that typically involves a combination of two (or more) previously separated organizations into a third new entity requiring approvals from the board of directors and stockholders of both corporations. While there are many mergers and acquisitions, the majority of activity falls under acquisitions (Andrade, 2002,, 1).

Regardless of methodology used to perform the merger or acquisition, many firms use an M&A to achieve various organizational objectives that can be used to expand into new markets and geographic regions, gain both technical and management expertise and knowledge, and increase the allocation of capital. M&A transactions can be part of an overall corporate strategy where management deals with the buying, selling, and combining different companies that are constructed to aid, finance, or help an organization grow without having to create another business entity. Ferguson (2003) contends that an M&A can gain synergy, increase revenue or market share, provide market and product extension, and consolidation to optimize organizational economies of scale (Austin, 2008,, 56).

Discussion

Pharmaceutical and Biotechnology Industries

Since the birth of the industry, big pharmaceutical and biotechnology companies have been fully integrated machines, motivated by the search for the next blockbuster drug. As described by former GlaxoSmithKline CEO, Jean-Pierre Garnier, the business model is simple - “new products are discovered, developed, launched, and protected by various patents” (Garnier, 2008). Typically, products are protected for ten to twelve years before the patent expires and products face competition from generic drugs. At this point, revenues from the drug drop off and the search for the next blockbuster commences. Big pharmaceutical and biotechnology firms are forced to focus on constant replacement of their pipeline. This is an incredibly difficult task, as product success is not just a function of enormous firm investment - compounds are subject to extensive clinical trials and Food and Drug ...