SIDC, the training and education arm of the Securities Commission imparted some good information to the public pertaining to M & A ( The Star (29/1/2007)):

• definition of mergers  & acquisitions and
• the process and
• shareholders’ roles in such situations. 

On DEFINITON mergers and acquisitions:-

• as M&A is part and parcel of the business world, an investor to know what these terms mean;
• differentiate the difference between Merger and Acquisition:

     Merger:

• generally, a merger can be defined as the combination of two companies of roughly equal size, pooling their resources together into a single business. The shareholders/owners of both companies have a share in the ownership of the merged business and the top management positions after the merger. Normally, the decision to merge is mutual between both companies. 

      Acquisition:

• An acquisition exercise can be done through the acquisition of another company’s voting shares or business operations and assets.

PROCESS of M&A ( Malaysian Scenario):-

• The process of acquiring a company normally starts with a search for potential acquisition candidates (or in the case of mergers, merger partners). Prior to approaching the target company, the management of the acquiring company should have an indicative value that they would pay for the assets to be acquired. 
• Negotiation would normally begin as soon as the management (or owners) of the target company is interested to deal. Sometimes, there are circumstances where approvals from regulatory authorities would have to be obtained before the affected party can start negotiation.
• If the transactions involve the sale or purchase of substantial assets by a public company, the regulations which govern such transactions are under Section 32 of the Securities Commission Act 1993 (SCA) and the Companies Act 1965.
• Where an acquisition involves the acquisition of voting shares which results in a change of control in a company, certain laws and regulations are put in place to protect the interests of shareholders, i.e. under Section 33 of the Securities Commission Act 1993 and the Malaysian Code on Take-overs and Mergers 1998 (Take-over Code). 
• Where an acquisition is carried out through a take-over offer to all the remaining shareholders of a company, the party which proposes to take over the target company will issue an offer document to the shareholders. This document will state all the important information on the offer.
• The shareholders will be offered as consideration either cash or shares of another company in exchange for their shares in the target company, or a combination of both shares and cash. In a share exchange situation, shareholders should find out more about the company whose shares are being offered as consideration. 

Role Of SHAREHOLDERS:

• Shareholders of a target company must ensure that they get the best possible deals.
• The shareholders of the target company should read and understand thoroughly the terms of the offer document and recommendations in the independent advice circular before deciding whether to accept the offer.
• Shareholders who wish to accept will need to fill up the acceptance form and mail it within the stipulated time. 
• If they are unsure of the next course of action, they should consult a licensed investment adviser or a remisier.
• As an investor or shareholder of a company, you must be well informed of your company’s activities or decisions so that your rights as a shareholder will not be compromised.  
  

Some KEY REASONS for restructuring (M&A) are: 
 

1. Globalisation of business: Increased cross-border investments require companies in this region to remain competitive (e.g. minimise production cost and increase efficiency via maximising technology transfer). They may have to venture overseas to remain in business. Alternatively, companies may merge as a quicker way to grow bigger and stronger and to exploit synergies.  

2. Market positioning: Growth via M&A is seen in many instances to be quicker and cheaper than organic growth. M&A helps to capture a bigger market share or as a market penetration tactic.  

3. Synergy: Two or more companies’ joint effort would not only develop a competitive edge, but it can also introduce an additional earnings stream while reducing dependence on unreliable earnings sources.

4. Broader strategy: Some companies undertake the merger and acquisition exercise to access new technology or to secure a source of supply or raw materials. 

5. Costs savings: Sometimes a company can save costs and achieve economies of scale by taking over or merging with another company. 

6. Opportunism: Where there is an opportunity, such as an increase in distressed or poorly managed companies in the market, it will surely prompt a strong company to take advantage of the situation to undertake a take-over or merger exercise

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Related Entries

• M&A: What is the difference between a merger and a takeover?
• Definitions & Rationale for M&A: Introduction
• Pre-offer & Post-offer Defenses
• “New” M&A Rules From China
• Mergers & Acquisitions: Potential Takeover Target