Features of conglomerate mergers and acquisitions
A merger is the process of merging two or more companies into one new legal entity. At the same time, it does not matter how the merger took place: through the termination of the existence of the old company or through the transfer of assets to the created LLC.
A takeover is, in essence, the joining of assets of one company to another. In this case, the rights are transferred from one LLC to another. The business strategy involves the purchase of a third-party company for funds, taking into account the repayment of possible debts of the redeemed organization.
If we are talking about a conglomerate merger or acquisition, then in this case there is a process of merging companies from various fields of activity.
What benefits conglomerate acquisitions have for the market as a whole, we will tell in this article.
Goals of conglomerate transactions
The main objectives of such mergers and acquisitions of companies are the desire of entrepreneurs to increase profits while minimizing financial and legal risks. Also among the main goals are:
- Capital diversification – asset allocation to reduce various risks of loss of funds.
- Entering new sales markets and increasing the number of counterparties and customers due to business consolidation.
- Reduction of financial costs.
- Increase in performance indicators of production and the enterprise as a whole.
- Creating conditions for business development in the shortest possible time, which will ensure an increase in revenue and income.
Types of conglomerate mergers
There are two types of conglomerate mergers of companies:
- Clean mergers. Affects firms that were not related to each other before the merger. At the same time, the taeovt affect their activities in the future – they will continue to work in various sales markets, as it was before the merger, but already within the framework of one LLC.
- Mixed mergers. In this case, the asset portfolio is expanded in order to capture new sales markets, including by expanding the product range.
Advantages of conglomerate mergers
- The firm receives vulnerability from most of the negative market factors that may interfere with its normal operation. This applies to exchange rates, seasonality, cyclical production, recession in the country’s economy and other factors.
- In case of a decrease in the revenue of one of the organizations, the lost revenue can be replaced by the revenue of another company.
- Organizations that sell in the same or adjacent markets may resort to the method of cross-selling, which involves the sale of goods through the same sales channels. This allows you to increase the revenue of products with prospects for revenue and revenue growth.
- Access to new sales markets, including interregional and international.
- The ability to reinvest profits, which is carried out by investments in another field of activity.
- Improving the investment climate to attract new investments and increasing opportunities to attract borrowed funds from lenders.
The procedure for conducting a conglomerate merger
- Making a decision at a meeting of the owners of two or more LLC to conduct a conglomerate merger.
- Submission of a notification of the decision to the Federal Tax Service within three working days from the date of the meeting. The document is drawn up in the form P12003.
- Written notification of all interested creditors.
- Publication of information in the public domain. As a rule, data on the upcoming merger are published in the “Bulletin of State Registration”.
- Collection of documents required for the legal registration of the procedure. The final list depends on the number of companies and the form of reorganization.
- The collected package of documents must be sent to the Federal Tax Service. This can be done in person or through the website of the tax authority.
- Receiving a new extract from the Unified State Register of Legal Entities about a week after submitting the documents.
It is important to take into account that the conglomerate merger procedure takes place according to the standard scheme of any company reorganization. As a rule, the participants in the process must first sit down at the negotiating table to resolve a number of issues of the upcoming merger. At each stage of the merger, it is advisable to hold an extraordinary meeting of the LLC participants in order to minimize a number of legal risks.
Question and answer
These are types of reorganization of a legal entity that differ from others in that companies belong to different sectors of the economy.
It is possible to challenge such types of transactions in court, or apply to regulatory authorities (FAS, the US Federal Trade Commission and the UK Competition and Markets Authority).
For joint-stock companies, there are ways to protect themselves by creating shares with different numbers of votes, so the control over the decisions of the company will remain with the former management.
In recent years , some of the most famous similar deals have been the following:
• Rosseti joining FGC UES at the end of 2022.
• Microsoft’s purchase of Activision Blizzard (the deal is currently suspended due to an investigation by the US Federal Trade Commission).
Such transactions have quite a long history. One of the first was the transformation of the Monte Pio pawnshop agency into the Monte dei Paschi di Siena bank in 1472. Thanks to the merger and acquisition procedure, this bank is considered the oldest in Italy and Europe.
Due to the fact that the assets of one LLC become the property of another, the old company actually ceases to exist. Mergers and acquisitions can be called a non-standard way of liquidating an enterprise when its owners do not want to resort to the usual procedure, for example, through the sale of assets and the payment of debts.