What national procedure is mandatory during a merger? Acquisitions and mergers of companies

A business merger is the process of combining all types of assets of two or more businesses. The companies involved in the merger cease to exist, and a new large organization enters the market in their place. It is the legal successor of the merged companies, and therefore is liable for the debts of the enterprises on the basis of which it was created.

Why do companies begin the merger procedure?

The pooling of company resources can be caused by reasons such as:

tough competition and the presence of large players in the competitive environment;
an alternative way if it is necessary to liquidate an enterprise due to an increased debt burden, including the option of merging the debtor with the creditor;
diversification of production by combining companies from different areas of activity;
low profitability or negative reputation of one of the organizations whose management does not want to liquidate the business project.

When combining the resource base of several large enterprises, the consent of the antimonopoly committee is required - in accordance with Federal Law No. 135-FZ dated July 26, 2006, this norm applies to companies whose asset value, according to recent reports, was above 7 billion rubles. or total revenue for the past year was at the level of 10 billion rubles. and more.

Note! When a bankruptcy procedure has been initiated, it is prohibited to consider options for reorganizing an enterprise through a merger (Article 64 of the Federal Law “On Bankruptcy”).

Purposes of the merger

The purposes of a company merger may include:

expansion of the sales market;
strengthening competitive positions;
improving the quality of products;
cost reduction due to production diversification;
expansion of the product range;
increasing the level of recognition in the target segment;
formation of a positive reputation and associative brand;
modernization of production facilities, introduction of innovative developments;
increased profitability;
increasing investment potential;
formation of larger working capital;
an increase in the price of the company's shares;
raising the threshold of creditworthiness.

Types of business mergers

Merger and accession are different concepts. In the first case, all enterprises participating in the reorganization are liquidated, and their resource base is transferred to a new legal entity. In the second option, one of the companies continues to exist by absorbing the assets of other parties to the transaction.

Forms of merger based on the type of merger:

Horizontal merger - competing companies that produce similar products and have a common market merge.
Vertical - combining different areas of business to increase control over the production chain from the raw material base to the final consumer (for example, an agricultural company merges with a plant for the production of seeds or fertilizers).
Generic – interrelated productions are combined (for example, a manufacturer of mobile phones and a manufacturer of accessories for gadgets).
Conglomerate - an association of unrelated companies from different production areas. The goal is to expand the range.
Expansion-geographical – association with the aim of increasing sales channels.

Forms of merger based on national and cultural characteristics:

national - carried out between companies operating within the same state;
transnational – between enterprises located in different countries.

In relation to the management class of firms, a merger can be friendly or hostile. Depending on the degree of priority of the assets being merged, the reorganization may be aimed at consolidating production capacities or expanding the financial base.

Pros and cons of merging companies

The benefits of a business merger can manifest itself in obtaining a quick positive effect. This method allows you to increase competitiveness and become the owner of a well-functioning organizational structure for doing business with a new market sector. An additional advantage is the likelihood of generating a significant amount of intangible resources, which can play a key role in a number of areas of activity.

The disadvantages of this development path are manifested in the following points:

the need for significant cash injections at the reorganization stage;
the risk of overestimating benefits;
personnel problems caused by possible staff reductions and the merger of several established teams;
incompatibility of national and cultural characteristics of work when merging organizations in different countries.

Company Merger Algorithm

The step-by-step actions of companies that decide to undergo reorganization through a merger are presented in 6 stages. The entire complex of procedures may require from 2 to 6 months.

Stage 1

Preparatory measures are being carried out in each of the merging organizations:

meetings of owners to approve the decision on reorganization with subsequent execution of minutes or the decision of the founder;
inventory of all company assets with inclusion of the results in the transfer act;
maximum debt repayment.

Stage 2

After agreeing on the details of the upcoming merger within the management level of each of the enterprises, a general meeting is held for all participants in the reorganization. At it, the terms of the merger are discussed, a draft version of the charter of the new enterprise is developed, and a consolidated transfer act is formed.

Important! Holding a general meeting is possible only if the managers from all companies that are subject to liquidation as a result of reorganization measures are present.

The result of the meeting is the signing of a joint protocol and a merger agreement.

Stage 3

Submitting a written notification to the registration authority of the intention to carry out a set of measures to merge certain companies. 3 days are allotted for this from the moment the merger agreement is signed.

Stage 4

At this stage what happens:

notification of creditors about the upcoming reorganization;
repayment of debts to government bodies (IFTS, Pension Fund and extra-budgetary funds) with receipt of certificates of absence of debts.

Nuance! Without confirmation from the tax authority or the Pension Fund that the reorganized companies have no debts, the merger procedure will be terminated.

Required condition! Publications about a merger of companies must include two notifications in the State Registration Bulletin at monthly intervals (Article 60 of the Civil Code of the Russian Federation).

Stage 5

Preparation of a package of documents and its submission to the registration authority after 30 days from the date of the last publication in the media about the start of the merger.

Stage 6

The procedure for entering information about a new enterprise into the Unified State Register of Legal Entities after its registration. Transfer of employees of the merged companies to a new organization without infringing on their rights in accordance with labor legislation.

The day before making an entry on the creation of a new legal entity, all participating companies prepare final financial statements with the closure of profit and loss accounts (Order of the Ministry of Finance dated May 20, 2003 No. 44n).

By the date of registration of a new legal entity, all data in the transfer deed is transferred to financial statements, called introductory statements.

Documentation of the merger

The merger is accompanied by the execution of two lists of documents. The first list is required at the stage of creating a new legal entity, the second - after the state registration procedure. When preparing a set of documentation, you should focus on the requirements of the Federal Law dated 08.08.2001 No. 129-FZ.

Documents submitted to the registration authority:

An application drawn up in form P12001 and notarized. It must indicate the form of reorganization with the exact number of participants and enterprises to be merged.
Charter of the new legal entity - 2 copies (one of them will be returned upon completion of all procedures).
A transfer deed indicating all amounts related to receivables and payables, and fixing the amount of assets transferred to the new legal entity. The act can be a balance sheet.
The decision of the antimonopoly authorities in the merger of enterprises with large volumes of income.
Documentary confirmation of the fact of notification of interested creditors (receipts for payment for publications in the media, postal marks on the forwarding of relevant letters, copies of pages with notification from the Bulletin).
The merger agreement with the minutes of the joint meeting of all owners.
A certificate from the Pension Fund confirming the absence of debt for each enterprise subject to liquidation during the merger process.
A receipt issued after payment of the state fee.

After 5 days from the date of submitting the package of documents, you can contact the Federal Tax Service to receive a second copy of the charter with a certificate of state registration, an extract from the Unified State Register of Legal Entities, and documents confirming the tax registration of a new business entity. Additionally, documentation will be issued regarding the termination of activities of all companies that have undergone reorganization.

Merger is the union of two equal companies. Acquisition is the buyout of one company by another. The goal of mergers and acquisitions is synergy, i.e. benefits from joint activities.

Mergers and acquisitions(eng. mergers and acquisitions, M&A) of companies - sets of actions aimed at increasing the total value of assets through synergies, i.e. benefits of joint activities. To put it simply, then mergers and acquisitions describe the transformation of two companies into one. A merger is the emergence of a new company as a result of the combination of two equal companies, and an acquisition is the buyout of the absorbed company by the absorbing company, as a result of which the absorbed company ceases to exist, and the absorber increases. A striking example of a takeover in Ukraine is UMC → MTS: the larger Russian company MTS bought out most of another company (UMC) and rebranded.

There are different theories that acquisitions and mergers are aimed at eliminating competitors, etc., but they are far from the truth. home The goal of any merger or acquisition is for the result to be greater than the sum of its parts(i.e. 1+1=3). In other words, companies that participate in the process hope to save costs and increase efficiency. Often, the productivity of a new/renovated company increases precisely by reducing costs.

Difference between acquisitions and mergers

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Terms " merger" (English merger) and " absorption"(English acquisition) are often confused or used as synonyms. Despite the fact that their meanings are very close and they always go in pairs, in fact mergers and acquisitions describe different concepts. From the terms themselves it is clear what the difference is; Let's take a closer look.

Acquisition of one company by another company

As in the example with the Russian telecom operator MTS, when one company buys out and “eats” another, often smaller company, this is called company takeover. (The image of smaller companies being swallowed gave rise to the term “business shark.”) Once a smaller company is “eaten,” it naturally ceases to exist in the legal sense.

In this scenario, all assets of the acquired or "eaten" company are transferred to the ownership of the acquiring company. As a result of the absorption, more a big company becomes even bigger.

For example, Google is a very aggressive consuming shark that has already swallowed up more than 100 companies, including YouTube, Begun (Russian company), FeedBurner, AOL and many other companies around the world.

There are both aggressive and friendly takeovers.

aggressive takeover occurs when a smaller company does not want to be “eaten up”, but the acquiring company simply buys back a huge number of shares, and leaves no choice
friendly takeovers occur when both parties agree and are in a good mood for takeover.

It often happens that Acquiring companies do not want to advertise the actual takeover, and pretend that an equal merger has occurred. An example of such a takeover would be DaimlerChrysler: Daimler-Benz bought Chrysler, but presented the deal as an equal merger. (Due to failures in working together, Chrysler was later sold back to the Americans.)

Merger of companies

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Merger of companies is an association of equal companies that gives rise to a new company. Usually, the companies in the merger are approximately equal by number of assets.

It is important to understand that actual merger of companies is a rare occurrence. As described above, most often what is called a merger is actually an acquisition behind the guise of a merger, as in the example with DaimlerChrysler.

Synergy is the goal of acquisitions and mergers

The main point of mergers and acquisitions is synergy. Synergy is the advantage of joint activities. After all, this is obvious: when two companies become one, you need one accounting department, not two, one advertising department, not two, etc. When two companies become one, the benefits can be as follows:

staff reduction(eng. downsizing, rightsizing): as mentioned above, the number of employees from such support departments as finance, accounting, marketing, etc. is reduced. Also one of the manuals becomes unnecessary.
economies of scale: due to a quantitative increase in purchases, transportation, etc., the new company saves on wholesale terms. You also need to remember about everything that is needed, one thing per company: for example, server protection systems, a program for accounting for goods and personnel, etc.
increase in market share: When companies merge, the new company has a larger market share and brand awareness also increases. The advantage is that it is easier to win new market shares with a large share than with a small one. The conditions of creditors are also improving, because There is more trust in a big company.

But it is important to understand that Not every merger or acquisition has synergies. It often happens that conflicts occur in a new company, as happened with DaimlerChrysler, where the internal charters of the companies fundamentally did not coincide. Unfortunately, unsuccessful mergers and acquisitions are not uncommon.

Types of company mergers

There are many different ways of company mergers. These types of mergers are divided into 2 main groups: by the relationship between the companies and by the type of financing.

Types of mergers according to relations between companies

Basic types of mergers by type of relationship between the merging companies are as follows:

horizontal merge: a merger of two competing companies that do the same thing and are in the same niche
vertical merger: association of supplier and consumer; for example, a furniture manufacturer and a manufacturer of raw materials (i.e. boards, plywood, etc.)
merger to expand the sales market: an association of companies that are in the same industry, but sell goods in different markets
merger of companies related by sales line: an association of companies selling related products on one market

"). In the final article we will look at the specifics of merging. Do I need to close current accounts? Should income and expenses be recorded if the merger involves a debtor and a creditor? We answered these and other questions in this material.

Initial stage of merger

A merger is a form of reorganization in which several companies cease to exist as separate legal entities and merge into one, larger organization.

The sequence of steps that must be taken in the first stage of a merger is the same as in other forms of reorganization. We have listed all the necessary steps in the table.

Actions to be taken at the initial stage of the merger

Action	Who commits
Decide on merger	Owners	By decision of the owners
Send the decision on the merger to the “registering” Federal Tax Service and attach a written message about the reorganization		Within three business days after the date of the merger decision. Next, the Federal Tax Service will make an entry in the state register about the start of the reorganization
Inform the Pension Fund and the Social Insurance Fund in writing about the upcoming reorganization		Within three working days after the date of the merger decision
Notify all known creditors	Each company involved in the merger	Within five working days from the date of filing the application with the Federal Tax Service
	The company that last decided to merge	Twice at intervals of once a month
Prepare the constituent documents of the organization created by merger	Persons responsible for the reorganization	No deadlines set
Conduct an inventory of property and liabilities	Each company involved in the merger	Immediately before drawing up the transfer deed

Transfer deed

The next step is preparing the transfer deed. Each company participating in the merger must draw up this document. The date of the transfer deed can be any. But it is better that it coincides with the end of the quarter or year - as stated in paragraph 6 of the Instructions for the formation of accounting records during reorganization *.

The transfer deed must contain provisions on legal succession (Article 59 of the Civil Code of the Russian Federation). This is information about the amounts of receivables and payables, as well as about the property transferred to the newly created company. The value of the property under the transfer deed can be market, residual, initial, or corresponding to the actual cost of inventories (clause 7 of the Instructions for the formation of accounting records during reorganization).

There are no restrictions on the form of the transfer deed. Most often, it is drawn up in the form of an ordinary balance sheet and transcripts are attached for each of the lines. Inventory sheets can be used as transcripts. There is another option: abandon the balance sheet form, and simply list all types of assets and liabilities (fixed assets, intangible assets, “debtor”, “creditor”, etc.) and indicate their value. And in separate appendices, provide lists of objects, debtors, etc. (example examples of the transfer deed can be downloaded or).

Period until completion of merger

Then you need to prepare documents for the reorganization. This is a deed of transfer, an application for registration of a company created by merger, a decision on reorganization, a document on payment of state duty, etc. The full list is given in paragraph 1 of Article 14 of Federal Law No. 129-FZ dated 08.08.01.

The package of documents should be brought to the “registering” Federal Tax Service and wait until the inspectors make an entry in the Unified State Register of Legal Entities. With the advent of this entry, the predecessor companies will cease to exist, and a new successor organization will appear in their place. But until the waiting period is completed, the predecessors continue to work: they calculate wages, depreciation, register the “primary”, etc.

Final financial statements of predecessor companies

Each company participating in the merger must prepare final financial statements as of the date preceding the date of entry into the Unified State Register of Legal Entities about the reorganization. The reporting consists of , and , explanation and auditor's report (if the company is subject to mandatory audit).

The final accounting statements must reflect transactions performed during the period from the signing of the transfer deed to the closure of the predecessor organization. Because of these transactions, the indicators in the final balance sheet will not coincide with the indicators in the transfer act.

In addition, each predecessor company must close account 99 “Profit and Loss”. Profits can be distributed according to the decision of the founders.

After the final reporting, predecessors do not have to submit balance sheets and other documents, since the last reporting period for them is the time from the beginning of the year to the date of merger.

Inaugural reporting of a newly created organization

An organization created as a result of a merger must draw up introductory financial statements as of the date on which an entry about the reorganization is made in the Unified State Register of Legal Entities. The lines of the opening balance will contain the sum of the corresponding indicators of the closing balances of predecessors. The exception is mutual settlements between predecessors - for example, when one of them was a borrower and the other a lender. Such indicators are not summed up, since if the debtor and creditor coincide, the obligation terminates. Also, in the introductory statements of the assignee, there is no need to summarize the data from the profit and loss statements of the reorganized companies.

Particular attention should be paid to the authorized capital of the successor organization. If it is less than the amount of capital of predecessors, then the difference is reflected in the balance sheet in the line “Retained earnings (uncovered loss).” If the legal successor’s capital is greater than the amount of capital before the reorganization, such a difference does not need to be shown in the balance sheet. In both cases, the accountant does not make any entries.

The introductory report must be submitted to the Federal Tax Service either immediately after registration or at the end of the current quarter - depending on what is more convenient for your inspector.

"Primary" in the transition period

After the merger, the newly created company “inherits” the contractual relations of the reorganized legal entities. But the agreements themselves are still concluded on behalf of their predecessors. The question arises: is it necessary to sign additional agreements to replace the parties to the transaction? Or can you simply send information letters to counterparties that indicate the name and details of the successor company?

We believe that additional agreements are not necessary, because all the rights and obligations of each of the predecessor companies are transferred to the newly created organization under the transfer deed (clause 1 of Article 58 of the Civil Code of the Russian Federation). This also applies to contractual relations. This means that to continue cooperation with suppliers and clients, an extract from the Unified State Register of Legal Entities and a transfer deed are sufficient.

As for invoices, certificates of work performed and invoices, before the date of merger they are issued on behalf of predecessors, on the date of merger and further - on behalf of the successor.

Do I need to close current accounts?

Accountants often question whether the predecessor company should close its account before a merger. Such an obligation is not provided for by law. In other words, the organization can transfer the account to a successor, like any other property and liabilities. To do this, it is enough to bring new constituent documents to the bank and reissue the card with signatures.

Who pays taxes for reorganized companies

The newly formed organization is the only legal successor, and the responsibility to pay taxes for all reorganized companies passes to it (Clause 4 of Article 50 of the Tax Code of the Russian Federation). In this regard, inspectors must transfer the balances from the payment cards with the budget of each predecessor to the personal account of the successor.

Who submits declarations for reorganized companies

If possible, predecessor organizations must report all taxes before the merger, that is, before making an entry in the unified state register. But in practice, as a rule, they do not have time to do this. Then, the very next day after the reorganization, inspectors at the place of registration of the predecessor refuse to accept declarations. In this case, all tax reporting will have to be submitted to the newly created organization to its inspectorate. If, after the reorganization, mistakes of the predecessor are discovered, the successor submits a “clarification” for him.

Please note: the deadline for submitting declarations will not be shifted due to the reorganization. For example, for the year the successor is obliged to report no later than March 28 of the following year - both for himself and for each predecessor.

If during a merger the debtor merged with the creditor

It happens that one participant in the merger is a debtor, and the other participant is a creditor. Then, after the reorganization, the creditor and debtor become one, and the debt is automatically repaid. This means that because of the merger, the debtor will not have to repay the debt, and the creditor will not be able to get his money back.

Is the debtor obliged to show income on the date of reorganization, and the creditor expenses? The Tax Code does not regulate this issue. But officials believe that taxable income does not arise for the debtor. The Russian Ministry of Finance expressed this point of view in letters and. True, they talk about reorganization in the form of annexation. But, in our opinion, the conclusions are also applicable in the case of a merger.

In addition, similar conclusions can be drawn regarding the lender's costs. In other words, as of the merger date, the creditor may not include the extinguished debt as an expense.

A special case is the situation when a merger involves a supplier and a buyer who, before the reorganization, transferred an advance to the supplier. In such circumstances, the seller has the right, before reorganization, to deduct VAT previously accrued on the prepayment. The buyer, on the contrary, is obliged to restore the tax previously accepted for deduction when transferring the advance payment. The same position is given in the letter of the Ministry of Finance of Russia dated September 25, 2009 No. 03-07-11/242. Although the letter refers to affiliation, it can also be used as a guide in the event of a merger.

Tax base for VAT

The newly created company can deduct , which one of its predecessors paid to sellers or at customs, but did not have time to take for deduction before the merger.

The successor must confirm the right to deduction with an invoice and primary documents for the transaction. It is also necessary that the goods (results of work, services) purchased by the predecessor be registered for use in transactions subject to VAT. There is one more mandatory condition: the predecessor must transfer documents confirming payment (clause 5 of Article 162.1 of the Tax Code of the Russian Federation).

An organization formed as a result of a merger can deduct VAT, which predecessors accrued when receiving an advance. The assignee can do this after the sale of the prepaid goods, or after termination of the transaction and return of the advance payment. There is one limitation here - the deduction must be accepted no later than one year from the date of return (clause 4 of Article 162.1 of the Tax Code of the Russian Federation).

In practice, many problems arise due to the date of invoices issued in the name of predecessors. If the documents are dated after the reorganization, then the inspectors do not allow the deduction to be accepted. In such a situation, the accountant can only contact the suppliers and ask for corrections.

Personal income tax reporting

Reorganization in the form of a merger does not interrupt the tax period. This is explained by the fact that the company is not a taxpayer, but a tax agent, and labor relations with personnel continue (Article 75 of the Labor Code of the Russian Federation). This means that there is no need to submit any interim reporting on personal income tax during reorganization.

There is one important nuance here: if, after the merger, an employee brought a notice for property deduction, where the predecessor organization is indicated as the employer, the accounting department of the successor company must refuse him. The employee will have to go to the tax office again and get another notice confirming the deduction related to the legal successor. Such clarifications were given by the Russian Ministry of Finance. In practice, inspectors everywhere follow these clarifications and cancel the deduction provided under an “outdated” notification.

Insurance premiums and reporting to funds

One of the most controversial issues arising in connection with a merger is this: should the newly created organization calculate the taxable base for insurance premiums from scratch? Or does it have the right to continue the countdown begun by its predecessors before the reorganization?

The amount of contributions directly depends on the answer. If the assignee resets the base, he will automatically lose the right to exempt accruals from contributions that exceed the maximum amount (in 2011 it is equal to 463,000 rubles). If he “inherits” the base, then along with it he will receive the right not to charge contributions for the excess amount.

In our opinion, when reorganizing in the form of a merger, the successor company must begin anew to determine the base for contributions. This is explained by the fact that for an organization created after January 1, the first billing period is the time from the date of creation to December 31 (Part 3 of Article 10 of the Federal Law of July 24, 2009 No. 212-FZ). At the same time, there are no provisions in this law that would talk about the transfer of the base “by inheritance” in this law.

If the predecessors did not pay fees or report to the funds before the merger, the successor will have to do this. This obligation is enshrined in Part 16 of Article 15 of Federal Law No. 212-FZ.

* Guidelines for the preparation of financial statements during the reorganization of organizations were approved by order of the Ministry of Finance of Russia dated May 20, 2003 No. 44n.

Acquisitions and mergers are often used to structure companies. These are operations of an economic and legal nature designed to unite several organizations into a single corporate structure. The owners of the new business unit are those who have a controlling stake. The purpose of the event is to improve capital efficiency.

What are the main pros and cons?

In an effort to improve their financial results, enterprises are attempting to merge. Joint management significantly increases the efficiency of organizations. Mergers and acquisitions in Russia, as practice shows, provide an opportunity to adapt to a progressive economic system and gain additional privileges in competition.

The advantages of the merger are obvious:

reducing the time required to achieve a positive effect;
optimization of the tax base;
geographic expansion of business;
gaining control over tangible intangible assets;
acquisition of working capital directly at a previously reduced cost;
instant purchase of a specific market sector.

There are also some disadvantages:

quite large costs related to payment of penalties;
significant difficulties when there are companies in different industries;
possible difficulties when interacting with new employees;
in reality, the deal may not be very profitable.

Features of ongoing processes

The ongoing acquisitions and mergers have their own specifics. In case of a voluntary merger of companies, a new legal entity must be formed. If one enterprise joins another, then the main one retains its essence as a subject. All rights and obligations of subsidiaries are transferred to it.

Merger is the process of combining two or more legal entities on a voluntary basis. After all the documents have been completed, the new one begins to function. The combination can take place according to two scenarios.

Restructuring of companies is carried out with complete liquidation. The resulting enterprise acquires the assets and liabilities of the incorporated entities.
When merging, the rights of existing entities are partially transferred as investment contributions. In this case, the participants retain administrative and economic integrity.

A company takeover refers to the process in which one company buys out another. After registration, she begins to fully control its activities. In this case, the dominant company acquires at least 30 percent of the authorized capital of the second legal entity.

Classification of merging procedures

Conducted mergers and acquisitions can be divided according to various principles. The type of association is selected depending on the conditions established in the market environment, as well as on the potential opportunities that business companies have.

The table shows the main types of joins.

	Peculiarities
Horizontal	During the process, organizations engaged in the same activities or having a similar technical and technological structure are integrated.
Vertical	Connecting enterprises directly in different industries. This is done to control the previous stages of the production process.
Conglomerate	The operation of combining enterprises in different industries, while they do not have any technological or production similarity.
	Companies developing the same product are merging. For example, a combination of enterprises for the production of mobile devices and software can be carried out.

Also, mergers and acquisitions are classified according to national and cultural characteristics. If the organizations being restructured are located on the territory of one state, then they are considered national. Their activities do not go beyond the boundaries within which they conduct them. Transnational is an association of entities from different countries. Their number can be unlimited. Multinational corporations are common these days.

Fundamental points of positive effect

In order for acquisitions and mergers to be positive, it is necessary to take into account some factors:

determining the optimal form of association;
speed of connecting middle and senior staff to the process;
the amount of expected capital for integration;
procedure for conducting a transaction;
selection of the main representative for future relations.

During the operation, it is necessary to understand from the very beginning that obtaining a positive result when combining organizations should lead to increased profits. At the entire stage of restructuring, mistakes made should be corrected in a timely manner. The ultimate goal is not only to have a synergistic effect, but to maintain it for a long time.

Preparing for the M&A Process

At the initial stage, the main tasks are set and ways to solve them are determined. It is necessary to understand whether the goals set can be achieved by alternative methods. To do this, it is necessary to carry out procedures to increase internal potential, develop suitable marketing strategies and other measures that can bring them closer to the planned result.

After this, a search for a suitable company to merge is carried out. Preparation directly for the transaction takes place in three stages.

The field of activity of the enterprise is studied: growth dynamics, possible distribution of potential, and the impact of external factors are assessed. The first step is to look at actual assets and liabilities.
Own capabilities are analyzed. In any case, the company must make an unbiased self-assessment. Using the data obtained, you can understand what criteria should be used when choosing an organization.
Possible competitors are being investigated. You can feel all the positive aspects of the merger if you carefully study the potential of your rivals. By assessing them, it is easier to determine the strategic direction.

Analysis of the effectiveness of the completed transaction

There is an opinion that a merger of companies will be a great success if a company from a market sector that is progressively developing is chosen as an opponent. However, this approach is not correct. The final assessment of mergers and acquisitions is made based on various studies:

analysis of the balance of incoming and outgoing transactions;
determining the benefits of integration for all parties;
taking into account the specifics of the association;
identifying the main problems in the field of tax base, personnel and legal restrictions.

Possible negative points

Transformations with economic structures can have not only positive, but also negative effects. The studies conducted show completely different results. Analysts came to the conclusion that negative aspects arise for a number of reasons related to each other:

erroneous assessment of the capabilities of the acquired company;
misuse of financial resources necessary for integration;
illiterate steps at the combination stage.

Application in practice

During a period of economic instability in a state, the best way out of the situation is to create an alliance. Such measures will help reduce the cost of assets and unite efforts to survive during the crisis. There are a lot of examples of mergers and acquisitions, but the option with the American company LHC Group deserves special attention.

The presented organization managed to double its value within six months. And this is in a financial crisis. The use of an outsourcing scheme made it possible to increase the structure by 8 economic units in just six months. The financial benefits won made it possible to significantly expand the scope of services. The company managed to find opportunities for progressive development by investing funds, despite negative external factors.

As a conclusion

On the Russian mergers and acquisitions market, the total amount of transactions completed decreased by an average of 29 percent. This is due to a decrease in the volume of operations performed. The Russian Federation's share in the world market was approximately 1.3 percent. Over the past ten years, such low rates have not been observed. As for foreign investment, its volume increased by 40 percent.

The basic principles of development of large companies in the 80s - economy, flexibility, agility and compactness - in the second half of the 90s were replaced by a focus on expansion and growth. Large companies strive to find additional sources of expansion of their activities, among which one of the most popular is mergers and acquisitions of companies. Merger is one of the most common development methods that even very successful companies are currently resorting to. This process in market conditions becomes a common, almost everyday phenomenon.

Few issues in economic theory and practice generate more heated debate than those of mergers and acquisitions. There are absolutely opposing points of view on the feasibility and effectiveness of such restructuring of companies: some view mergers as an important source of increasing the performance of companies; others see them only as a reflection of the bossy instincts of managers whose desires reduce, rather than enhance, company performance.

But no matter what opinions exist on this issue, mergers and acquisitions of companies are an objective reality that needs to be researched, analyzed and appropriate conclusions made so as not to repeat mistakes that have already been made many times by others.

The global experience of corporate management, and, above all, the American one, in the field of company restructuring will certainly be very useful for newly created and existing Russian corporations and quite applicable in practical activities.

According to experts, the Russian economy is not in danger of a boom in corporate mergers similar in scale to its Western or American counterparts in the near future. Although in 1998 many loud statements were made by Russian companies about their intention to merge, it is predicted that the most common will not be their merger, but their absorption, most likely by foreign companies.

In these conditions, it is very important to be able to navigate the types of mergers of companies, identify the main goals that the parties pursue when concluding a merger or acquisition of companies, and evaluate the effectiveness of such a transaction and its possible consequences. If a company is threatened with takeover by another company, then it is necessary to prepare very well for this process: either take anti-takeover measures in a timely manner, which have been quite actively tested in world practice, or through your actions achieve favorable takeover conditions, bearing in mind that in most cases, Paradoxically, as a result of such a transaction, it is not the acquiring company that wins, but the acquired company. You just need to try to increase this winning!

Before moving on to issues that are undoubtedly of practical importance, we will define the features of terminology, consider the classification of the main types of mergers and acquisitions of companies and briefly dwell on the historical aspects of these processes, paying maximum attention to the modern wave of mergers of companies.

There are certain differences in the interpretation of the concept of “merger of companies” in foreign theory and practice and in Russian legislation.

In accordance with approaches generally accepted abroad under merger means any association of economic entities, as a result of which a single economic unit is formed from two or more pre-existing structures.

In accordance with Russian legislation, under merger refers to the reorganization of legal entities, in which the rights and obligations of each of them are transferred to the newly emerged legal entity in accordance with the transfer act. Consequently, a necessary condition for the execution of a merger transaction is the emergence of a new legal entity, while the new company is formed on the basis of two or more previous companies that have completely lost their independent existence. The new company takes control and management of all assets and liabilities to clients of the companies - its constituent parts, after which the latter are dissolved. For example, if company A merges with companies B and C, then as a result a new company D may appear on the market (D = A + B + C), and all others are liquidated.

In foreign practice, a merger can be understood as an association of several companies, as a result of which one of them survives, and the rest lose their independence and cease to exist. In Russian legislation, this case falls under the term “ accession ”, implying that the activities of one or more legal entities are terminated with the transfer of all their rights and obligations to the company to which they join (A = A + B + C).

Abroad, the concepts of “merger” and “acquisition” do not have such a clear distinction as in our legislation. Even the English analogues of the concepts in question have ambiguous meaning:

Merger – absorption (by purchasing securities or fixed capital), merger (of companies);

Acquisition – acquisition (for example, shares), takeover (of a company);

Merger and acquisitions – mergers and acquisitions of companies.

The takeover of a company can be defined as one company taking control of another, managing it with the acquisition of absolute or partial ownership of it. The takeover of a company is often carried out by purchasing all shares of an enterprise on the stock exchange, meaning the acquisition of this enterprise.

From a legal point of view, there are quite a large number of ways of unification.

Classification of the main types of mergers and acquisitions of companies

In modern corporate management, many different types of mergers and acquisitions of companies can be distinguished. We believe that the most important classification features of these processes include (see Fig. 1):

the nature of company integration;

nationality of the merged companies;

companies' attitude towards mergers;

a way to combine potential;

terms of merger;

fusion mechanism.

Figure 1. Classification of types of mergers and acquisitions of companies

Let's look at the most common types of company mergers. Depending on the nature of company integration, it is advisable to distinguish the following types:

horizontal mergers – an association of companies in the same industry that produce the same product or carry out the same stages of production;

vertical mergers – an association of companies from different industries connected by the technological process of production of the finished product, i.e. expansion by the purchasing company of its activities either to previous production stages, up to sources of raw materials, or to subsequent ones - to the final consumer. For example, the merger of mining, metallurgical and engineering companies;

generic mergers – an association of companies producing related products. For example, a company that produces cameras merges with a company that produces photographic film or chemicals for photography;

conglomerate mergers – association of companies from various industries without the presence of a production community, i.e. This type of merger is a merger of a firm in one industry with a firm in another industry that is neither a supplier, nor a consumer, nor a competitor. Within the conglomerate, the merging companies have neither technological nor target unity with the main field of activity of the integrator company. Profiling production in this type of association takes on a vague outline or disappears altogether.

In turn, three types of conglomerate mergers can be distinguished:

Mergers with product line expansion (product line extension mergers), i.e. a combination of non-competing products whose distribution channels and production processes are similar. An example is the acquisition by Procter & Gamble, a leading detergent manufacturer, of Clorox, a manufacturer of laundry bleaching agents.

Mergers with market expansion (market extension mergers), i.e. acquiring additional distribution channels, such as supermarkets, in geographic areas not previously served.

Pure conglomerate mergers , which do not imply any generality.

Depending on the nationality of the merged companies, two types of mergers of companies can be distinguished:

– national mergers – association of companies located within the same state;

– transnational mergers – mergers of companies located in different countries (transnational merger), acquisition of companies in other countries (cross-border acquisition).

Taking into account the globalization of economic activity, in modern conditions mergers and acquisitions not only of companies from different countries, but also of transnational corporations are becoming a characteristic feature.

Depending on the attitude of the company’s management personnel to the merger or acquisition transaction, the following can be distinguished:

friendly mergers – mergers in which the management and shareholders of the acquiring and acquired (target, selected for purchase) companies support this transaction;

hostile mergers – mergers and acquisitions, in which the management of the target company (target company) does not agree with the upcoming transaction and carries out a number of anti-takeover measures. In this case, the acquiring company has to take action on the securities market against the target company with the aim of absorbing it.

Depending on the method of combining potential, the following types of merger can be distinguished:

corporate alliances - this is an association of two or more companies, concentrated on a specific separate line of business, ensuring a synergistic effect only in this direction, while in other types of activities the companies act independently. Companies for these purposes can create joint structures, for example, joint ventures;

corporations – this type of merger occurs when all the assets of the companies involved in the transaction are combined.

In turn, depending on what potential is combined during the merger, we can distinguish:

industrial mergers – these are mergers in which the production capacities of two or more companies are combined in order to obtain a synergistic effect by increasing the scale of activity;

purely financial mergers - these are mergers in which the merged companies do not act as a single whole, and significant production savings are not expected, but there is a centralization of financial policy that helps strengthen positions in the securities market and in financing innovative projects.

Mergers can be carried out on parity terms (“fifty-fifty”). However, accumulated experience suggests that the “equity model” is the most difficult option for integration. Any merger may result in a takeover.

In foreign practice, the following types of company mergers can also be distinguished:

merger of companies functionally related through production or sales of products (product extension merger);

a merger resulting in the creation of a new legal entity (statutory merger);

full acquisition or partial acquisition;

outright merger;

merger of companies accompanied by an exchange of shares between participants (stock-swap merger);

takeover of a company with the addition of assets at full cost (purchase acquisition), etc.

The type of merger depends on the market situation, as well as on the companies' strategy and resources at their disposal.

Mergers and acquisitions of companies have their own characteristics in different countries or regions of the world. So, for example, unlike the United States, where mergers or acquisitions of large firms occur primarily, in Europe there are acquisitions of small and medium-sized companies, family firms, and small joint-stock companies in related industries.

Historical aspects of the merger

Mergers and acquisitions of companies throughout their history have been undulating. Five most pronounced waves in the development of these processes can be noted:

wave of mergers 1887-1904;

mergers of companies in 1916-1929;

a wave of conglomerate mergers in the 60-70s of our century;

wave of mergers in the 1980s;

mergers in the second half of the 90s.

All these periods are marked by their own characteristic features. The main trends in the wave-like development of mergers and acquisitions of companies are shown in Table. 1.

The first peak of mergers occurred at the beginning of the nineteenth century. Then the consolidation of enterprises was caused by changes in the legislative framework and extremely unfavorable conditions for doing business. For the first time, companies emerged that took a monopoly position in a number of industries. The ability to significantly influence market prices by manipulating production and supply provided them with particularly high profitability and changed the very essence of a market economy, which had previously been based on the principles of free competition.

In historical retrospect, the surge in mergers of companies engaged in different types of business is very interesting, i.e. conglomerate type mergers. The boom of large diversified companies, i.e. conglomerates, occurred in the 60s of our century, although large conglomerates were created back in the 20s. But then their creation was initiated by the tasks of militarization of the economy, and in the 60s the formation of conglomerates took place on a purely commercial basis.

Table 1

Brief description of the most significant periods in the development of mergers and acquisitions of companies

Wave of mergers	Brief description of the period of merger of companies
	Most mergers were carried out according to the principle of horizontal integration. Almost all industries were dominated by monopolies, i.e. the only dominant firms. Next came enterprises that can be considered the forerunners of modern vertically integrated corporations. A distinctive feature of most mergers during this period was their multiple nature: 75% of the total number of mergers involved at least 5 companies, 26% of them involved 10 or more companies. Sometimes several hundred firms merged.
	Due to the effect of antimonopoly legislation, the merger of companies in industries no longer leads to the dominance of a monopoly, but to an oligopoly, i.e. to the dominance of a small number of largest firms. This wave is more characterized by vertical mergers and diversification than the previous one.
60-70s	This stage is characterized by a surge in mergers of firms engaged in different types of business, i.e. conglomerate type mergers. The US Federal Trade Commission estimates that from 1965 to 1975, 80% of mergers resulted in the formation of conglomerates. The number of pure conglomerate mergers increased from 10.1% in 1948-55. to 45.5% in 1972-79. Strict antitrust laws limited horizontal and vertical integration. The number of horizontal mergers has fallen from 39% in 1948-55. to 12% in 1964-71
	During this period, the share of conglomerate-type mergers decreased. Moreover, the creation of new associations was accompanied by the destruction of previously created conglomerates. The trend of hostile takeovers is becoming noticeable. Given the easing of antitrust policies, horizontal mergers are most common during this period.
second half of the 90s	The most popular type of merger is horizontal integration. Characteristic is the association of transnational corporations, i.e. overconcentration of companies. Mergers and acquisitions in the financial sector have gained enormous momentum.

In the 70s, the active work of large companies to diversify them continued and it was associated, first of all, with the desire to acquire assets in the fields of electronics and telecommunications.

But in the 1980s, conglomerate profits began to decline steadily. Companies that were part of conglomerates performed worse than independent companies in the same industries, and new acquisitions brought only colossal losses. According to Michael Porter's calculations, in the first half of the 1980s, takeovers by conglomerates of companies in unrelated industries failed in 74% of cases.

In the eighties, the share of conglomerate-type mergers decreased significantly. Moreover, the creation of new corporations was accompanied by the destruction of conglomerates that arose 10-20 years ago. During this period, takeovers of competitors through the purchase of their shares prevailed, including hostile takeovers that became very noticeable among them. Given the relaxation of antitrust laws, horizontal mergers have intensified. Thus, cases of horizontal mergers can be found, for example, in aviation: the Northwest company absorbed the Republic company in 1986.

Let us emphasize once again that mergers to form conglomerates are now the least popular. However, among the companies whose shares are currently traded on the New York Stock Exchange, forty companies are officially classified as conglomerates. These include such well-known companies as General Electric, American conglomerates Textron Inc and United Technologies Corp, British Hanson, Dutch Philips Electronics, Italian Montedison, etc. But all these conglomerates have refocused their activities on those segments in which they are leaders. They are currently acquiring companies in key business areas and selling all non-core assets.

In the nineties, one of the reasons for mergers was the desire to ensure stability in changing markets. In the West, as a result of fierce competition and uncertainty in the external environment, the horizontal type of merger has become popular. Thus, in the steel industry, for example, due to excess supply, there was a reduction in the number of enterprises in the industry. The same can be said about companies providing Internet access services. In this industry, uncertainty led to the merger of America Online and CompuServe. In 1997–98, the merger boom primarily affected financial institutions.

From the point of view of experts, the reasons for the surge in mergers in 1998 are related to the general processes of globalization in the economy and the expected creation of a European economic and monetary union. However, there are also specific factors in each specific area of business. For example, the growth in the number of mergers of companies specializing in financial activities was influenced by the increase in demand for the services of these firms, as well as the convergence of previously fundamentally different market sectors, banking and insurance.

The largest mergers and acquisitions that took place in the second half of the 90s are shown in table. 2, compiled from information contained in Acquisitions Monthly magazine.

Commenting on the information contained in table. 2, it should be noted that all the mergers of companies and banks listed in it are the largest in the last 15 years, and most of them occurred in the first half of 1998. These data once again confirm the presence of the next (fifth) wave of mergers and acquisitions of companies.

table 2

Brief characteristics of the largest mergers of companies
in the second half of the 90s

Names of companies participating in the merger transaction		Merger date
Travelers Group Inc (USA)	insurance	April 1998
Citicorp (USA)
SBC Communications (USA)	TV
Ameritech Corp (USA)
“Bank of America” (USA) – “Nationalsbahk”		April 1998
Corp" (USA)
“AT&T Corp” (USA) – “Telecommunications”		June 1998

“Daimler-Benz” (Germany) –	car-
Chrysler Corp (USA)	structure
“Worldcom” (USA) –		October 1997
MCI Communications (USA)
“American Home Products Corp” (USA) –	consumer	June 1998
Monsanto Co (USA)	goods, chemistry
“Norwest Corp” (USA) –	finance, services	June 1998
Wells Fargo & Co (USA)
“Banc One Corp” (USA) – “First Chicago”		April 1998
NBD Corp" (USA)
“ABC Communications” (USA) – “Pacific		April 1996
Telesys” (USA)
Swiss Bank Corporation (Switzerland) –		December 1997
“Union Bank of Switzerland” (Switzerland)
“Bell Atlantic Corp” (USA) – “Ninex” (USA)		April 1996
Berkshire Hathaway (USA) – General Re	retail	June 1998
Corp" (USA)
“Disney (Walt) Company” (USA)	cinema, entertainment	August 1995
“Capital Cities – ABC” (USA)	TV
First Union Corp (USA)		November 1997
Corestates Financial Corp (USA)
“Zurich Insurance” (Switzerland) –
BAT Industries Financial Services (UK)
“Grand Metropolitan” (UK)	trade
Guinness (UK)

In 1998, 26,200 mergers and acquisitions of companies were concluded, which was 1,700 transactions more than the previous year and 2.3 times more than in 1990. The volume of transactions concluded in 1998 increased almost 5 times compared to 1990.

The year 1998 was characterized by a number of very exciting merger stories. Thus, in November last year, Netscape Communications, a pioneer in the Internet technology market, was purchased for $4.21 billion by the world's largest Internet access company, America Online (AOL). The rise of Netscape was probably the most rapid in the history of the United States: in just four years, it turned its risky project into a multibillion-dollar business. It all started with a group of programmers writing a program for viewing documents on the Internet (browser). The company itself created a new market, which subsequently began to grow rapidly throughout the world. At first, Netscape acted alone in this market. Later, the so-called “browser war” begins: Navigator from Netscape and Explorer from Microsoft. As a result of the merger deal, Microsoft has a powerful competitor, because America Online services are used by 14 million people. Sun Microsystems, a longtime competitor of Microsoft, also joined the AOL-Netscape alliance. Under the three-party agreement, Sun will distribute Netscape software for high-end computers (servers), and AOL will use Sun's Java technology to create a new generation of Internet services.

The mergers and acquisitions taking place in the automotive industry are interesting and textbook. According to experts, in the next ten years, out of the 18 largest automobile companies, only ten may remain. Passions had hardly cooled down in connection with the sale of the British automobile company Rolls-Royce Motor Cars when another very significant event took place last year: the German company Daimler-Benz merged with the American company Chrysler Corp to form a new corporation. The main goal of this association at first is not so much economies of scale, but the use of a ready-made sales network in the partner’s area of activity and the elimination of double efforts where it exists. In addition, Chrysler Corp plans to begin production of Mercedes-Benz sports station wagons at a plant in the Austrian city of Graz. According to the New York Times, the American company already produces 50 thousand Grand Cherokee jeeps and the same number of Voyager minivans at this plant annually. The unequal conditions prevailing in the markets of the United States and Europe and the different projected growth rates of the partners' profits also determined the unequal terms of the merger transaction. The first violin in this union will be played by “Daimler-Benz”, its shareholders can exchange their shares for securities of the new company “Daimler - Chrysler” in a ratio of 1: 1, while for shareholders of “Chrysler Corp” it is set as 1: 0.6235.

Mergers and acquisitions have characterized the automotive industry throughout the last century. But it is worth remembering that, for example, Henry Ford was twice ready to sell his company to General Motors (for $8 million in 1909). However, General Motors was unable to raise the required amount of cash and thus the two leading automakers remained independent.

Main motives for mergers and acquisitions of companies

The theory and practice of modern corporate management puts forward quite a lot of reasons to explain mergers and acquisitions of companies. Identifying the motives for mergers is very important, they reflect the reasons why two or more companies, having merged, are worth more than separately. And increasing the capitalized value of the combined company is the goal of most mergers and acquisitions.

Analyzing world experience and systematizing it, we can identify the following main motives for mergers and acquisitions of companies (Fig. 2).

Obtaining a synergistic effect. The main reason for restructuring companies in the form of mergers and acquisitions lies in the desire to obtain and enhance a synergistic effect, i.e. the complementary action of the assets of two or more enterprises, the total result of which far exceeds the sum of the results of the individual actions of these companies. The synergistic effect in this case can occur due to:

economies of scale;

combining complementary resources;

financial savings by reducing transaction costs;

increased market power due to decreased competition (monopoly motive);

complementarity in R&D.

Rice. 2. The main motives for mergers and acquisitions of companies.

Economies of scale occur when the average cost per unit of output decreases as production volume increases. One source of these savings is to spread fixed costs over a larger number of units of output. The basic idea of economies of scale is to do more work in the same capacity, with the same number of workers, with the same distribution system, etc. In other words, increasing volume allows for more efficient use of available resources. However, we must remember that there are certain limits for increasing production volume, beyond which production costs can increase significantly, which will lead to a drop in production profitability.

Mergers and acquisitions can sometimes provide economies of scale by centralizing marketing, for example by combining efforts and creating sales flexibility, the ability to offer a wider range of products to distributors, and the use of common promotional materials.

Economies of scale are particularly common in horizontal mergers. But even with the formation of conglomerates, it is sometimes possible to achieve it. In this case, economies of scale are achieved by eliminating duplication of functions of various workers, centralizing a number of services, such as accounting, financial control, office management, staff development and overall strategic management of the company.

But it should be noted that integrating the acquired company into the existing structure is usually extremely difficult. Therefore, some companies after a merger continue to operate as a collection of separate and sometimes even competing divisions with different production infrastructure, research and development and marketing services. Even savings from centralizing individual management functions may not be achievable. The complex structure of a corporation, primarily of the conglomerate type, on the contrary, can lead to an increase in the number of administrative and managerial personnel.

A merger may be appropriate if two or more companies have complementary resources. Each has what the other needs, so merging them can be effective. These companies, after the merger, will be worth more than the sum of their values before the merger, since each acquires what it lacked, and receives these resources cheaper than they would cost it if it had to create them on its own.

Mergers to obtain complementary resources are common for both large firms and small businesses. Small businesses are often targeted for acquisition by large companies because they are able to provide the missing components for their successful operation. Small enterprises sometimes create unique products, but lack the production, technical and sales structures to organize large-scale production and sale of these products. Large companies are most often able to create the components they need themselves, but they can gain access to them much cheaper and faster by merging with a company that already produces them.

Monopoly motive. Sometimes in a merger, primarily of a horizontal type, the decisive role is played (openly or tacitly) by the desire to achieve or strengthen one’s monopoly position. A merger in this case allows companies to curb price competition: due to competition, prices can be reduced so much that each manufacturer receives a minimum profit. However, antitrust laws restrict mergers with the clear intention of raising prices. Sometimes competitors may be acquired and then closed because it is more profitable to buy them out and eliminate price competition than to push prices below average variable costs, forcing all producers to incur significant losses.

Benefits from the merger can be obtained due to savings on expensive work on the development of new technologies and the creation of new types of products, as well as on investments in new technologies and new products. One firm may have outstanding researchers, engineers, programmers, etc., but not have the manufacturing capacity or distribution network necessary to benefit from the new products they develop. Another company may have excellent distribution channels, but its employees lack the necessary creativity. Together, both companies are able to function fruitfully. Mergers can also bring together innovative scientific ideas and the funds needed to implement them.

Young, technologically advanced industries associated with the production and use of high-tech products, technological innovations, and highly complex equipment are becoming the main area of interest for mergers.

Improving the quality of management. Eliminate inefficiencies. Mergers and acquisitions of companies may aim to achieve differential efficiency, meaning that the assets of one of the firms were inefficiently managed, and after the merger the assets of the corporation will be more effectively managed.

If you wish, you can always find companies in which the opportunities to reduce costs and increase sales and profits remain not fully exploited, companies suffering from a lack of talent or motivation of managers, i.e. companies with ineffective management. Such companies become natural candidates for takeover by firms with more effective management systems. In some cases, “better management” may simply mean the need for painful staff reductions or reorganization of company operations.

Practice confirms that the targets of takeovers, as a rule, are companies with low economic indicators. Research shows that acquired companies had relatively low actual rates of return for several years before they were acquired by other firms.

Of course, mergers and acquisitions should not be considered the only possible means of improving management methods. Of course, if restructuring improves the quality of management, then this in itself is a fairly compelling argument in its favor. However, sometimes you can overestimate your ability to manage a more complex organization and deal with unfamiliar technologies and markets. Nevertheless, in some situations these procedures represent the simplest and most rational way to improve the quality of management. After all, managers, of course, will not make decisions to fire or demote themselves for ineffective management, and shareholders of large corporations do not always have the opportunity to directly influence decisions about who and how exactly will manage the corporation.

Tax motives. Current tax legislation sometimes stimulates mergers and acquisitions, the results of which are tax reductions or tax benefits. For example, a highly profitable firm with a high tax burden may purchase a company with large tax benefits that will be applied to the resulting corporation as a whole.

A company may have the potential to save on tax payments to the budget due to tax incentives, but its profit level is not sufficient to actually take advantage of this advantage.

Sometimes, after bankruptcy and related reorganization, a company can exercise the right to carry forward its losses to taxable profits of future periods. True, mergers undertaken solely for these purposes, for example, are regarded by the US Tax Service as questionable, and in relation to them the principle of loss carry-forward may be abolished.

Diversification of production. Possibility of using excess resources. Very often the reason for mergers and acquisitions is diversification into other types of business. Diversification helps stabilize the flow of income, which benefits both the employees of a given company, suppliers, and consumers (through expanding the range of goods and services).

The motive for a merger may be the emergence of temporarily free resources at the company. Let's say it operates in an industry that is in its maturity stage. The company generates large cash flows but has few attractive investment opportunities. Therefore, such companies often use the resulting surplus funds to carry out mergers. Otherwise, they themselves may become the object of absorption by other firms that will find use for excess funds.

This motive is associated with hopes for changing the structure of markets or industries, with a focus on access to new important resources and technologies.

The difference between a company's market price and its replacement cost. It is often easier to buy an existing business than to build a new one. This is appropriate when the market valuation of the target company's property complex (target company) is significantly less than the replacement cost of its assets.

The difference in the market price of a company and its replacement cost arises due to the discrepancy between the market and book value of the acquired company. The market value of a firm is based on its ability to generate income, which determines the economic value of its assets. If we talk about a fair valuation, then it is the market value, and not the book value, that will reflect the economic value of its assets, and, as practice shows, the market value very often turns out to be less than the book value (inflation, moral and physical depreciation, etc.).

The difference between the liquidation value and the current market value (sale “at random”). Otherwise, this motive can be formulated as follows: the opportunity to “buy cheap and sell high.” Often the liquidation value of a company is higher than its current market value. In this case, the company, even if it was acquired at a price slightly higher than the current market value, can later be sold “randomly”, in parts, with the seller receiving significant income (if the company’s assets can be used more efficiently when they are sold in parts to others companies, there is a semblance of synergy and synergistic effect). In general, if one takes the expediency view, liquidation should take place when the economic gains outweigh the economic losses.

Personal motives of managers. The desire to increase the political weight of the company's management. Of course, business decisions regarding mergers and acquisitions of companies are based on economic feasibility. However, there are examples where such decisions are based more on the personal motives of managers than on economic analysis. This is due to the fact that company leaders love power and claim higher wages, and the boundaries of power and wages are in a certain connection with the size of the corporation. Thus, the desire to increase the scale of companies was facilitated by the use of options as a means of long-term incentives. These options made up a significant portion of managers' compensation and were tied to the cost of capital of the company they led. In this regard, there are direct incentives to use profits to acquire more and more assets in any area of business.

Sometimes the reason for a merger is the overconfidence of managers who believe that the proposed transaction is complete. They are imbued with the excitement of the hunt, in which the prey must be overtaken at any cost. As a result, such buyers pay very dearly for their purchases.

In addition to traditional motives for integration, there may also be specific ones. Thus, mergers for Russian companies represent one of the few ways to counter the expansion of more powerful Western competitors into the Russian market.

Mechanism of mergers and acquisitions of companies

In order for a merger or acquisition to be successful, it is necessary:

choose the right organizational form of the transaction;

ensure strict compliance of the transaction with antimonopoly legislation;

have sufficient financial resources for the association;

in the event of a merger, quickly and peacefully resolve the issue of “who is in charge”;

to include not only senior but also middle management personnel in the merger process as quickly as possible.

The following organizational forms of mergers and acquisitions of companies are possible:

a merger of two or more companies, which assumes that one of the parties to the transaction takes on its balance sheet all the assets and all the liabilities of the other company. To apply this form, it is necessary to obtain approval of the transaction by at least 50% of the shareholders of the companies participating in the transaction (corporate charters and laws sometimes establish a higher share of votes required to approve the transaction);

a merger of two or more companies, which assumes that a new legal entity is created that takes on its balance sheet all the assets and all the liabilities of the merged companies. To apply this form, as well as the previous one, it is necessary to obtain approval of the transaction by at least 50% of the shareholders of the merging companies;

purchasing shares of a company either in cash or in exchange for shares or other securities of the acquiring company. In this case, the initiator of the transaction can negotiate with the shareholders of the company he is interested in on an individual basis. In this case, approval and support of the transaction by the managers of the acquired company is not required;

purchasing some or all of a company's assets. With this organizational form, unlike the previous one, ownership of assets must be transferred, and money must be paid to the company itself as a business entity, and not directly to its shareholders.

Mergers and acquisitions of companies can be carried out as follows:

Company X purchases the assets of Company Y for cash payment;

Company X buys the assets of Company Y with payment in securities issued by the purchasing company;

Company X can buy a controlling stake in Company Y, thereby becoming a holding company for Company Y, which continues to operate as an independent entity;

carrying out a merger between company X and company Y based on the exchange of shares between them;

Company X merges with Company Y to form a new Company Z. The shareholders of Companies X and Y exchange their shares in a certain proportion for shares of Company Z.

In order for the merger to be successful, it is necessary to take into account the requirements of antimonopoly legislation even when planning it. All major mergers and acquisitions are subject to control at the earliest stages. In the US, for example, both the Department of Justice and the Federal Trade Commission have the power to seek a court order stopping a merger. True, in recent years, only a few merger deals have been canceled on the basis of antimonopoly legislation, but such a threat exists constantly.

The takeover of a company may be a taxable or tax-exempt transaction. If the shareholders of the acquired company are considered by the tax authorities as sellers of shares, then they must pay capital gains tax. If the shareholders of the acquired company are considered as persons exchanging old shares for the same new ones, then neither capital gains nor losses are taken into account in this case.

The tax status of this transaction also affects the amount of taxes that the company pays after the acquisition. When a transaction is recognized as taxable, the assets of the affiliated company are revalued, and the resulting increase or decrease in their value is considered as profit or loss subject to taxation. If the transaction itself is recognized as not subject to taxation, the merged company is treated as if both merged companies existed together forever, so the transaction itself no longer changes anything in the application of the tax mechanism to them.

Analysis of the effectiveness of mergers and acquisitions of companies

Sometimes there is a misconception among managers that the rules for determining the effectiveness and attractiveness of a merger deal are simple. It is enough to acquire a company from a growing industry or buy it at a price below book value.

But all this is completely ambiguous. When assessing the effectiveness of this type of company restructuring, many factors must be taken into account.

When purchasing a company, funds are invested. Therefore, the basic principles of long-term investment decision-making can be applied. However, assessing the effectiveness of a merger or acquisition is often very difficult, due to the following points:

the need to determine economic benefits and costs, calculate the synergistic effect from mergers and acquisitions of companies;

the need to identify both the motives for the merger and which of the participants is most likely to profit from it and who will suffer losses;

the emergence of special tax, legal, personnel and accounting problems during mergers and acquisitions;

the need to take into account that not all mergers and acquisitions are carried out on a voluntary basis. In the event of a hostile takeover, the costs of implementing this transaction may significantly exceed those predicted.

Buying a company is not comparable to buying a new car or equipment, the first of which is much more complex. Various approaches are used to assess the effectiveness of such a transaction. Very often, the analysis of a merger or acquisition begins with a forecast of the future cash flows of the company that is going to be merged. This forecast includes any increase in revenue or decrease in costs resulting from the merger or acquisition, and then discounts these amounts and compares the result with the purchase price. In this case, the expected net benefit is calculated as the difference between the discounted cash flow of the acquired company, including the benefits of the merger or acquisition, and the cash required to complete the transaction.

If the present value of the expected incremental cash flow from the merger exceeds the price that must be paid for the acquired firm, then the acquiring firm is allowed to make the purchase.

In this case, the analysis of the effectiveness of a merger or acquisition of companies includes:

cash flow forecasting;

determining the level of the discount rate or cost of capital to estimate the projected cash flow;

assessment of the real value of the acquired company;

comparative analysis of the obtained data.

The approach discussed above does not always give objective results. Even a well-trained analyst can make serious miscalculations in assessing a company's value. The expected net benefit may be positive, not because the merger is truly effective, but only because the target company's future cash flows are overly optimistic. On the other hand, a truly expedient merger may not take place if the potential of the acquired company is underestimated.

It is more expedient to first understand why two or more companies, having merged, will cost more than separately, and evaluate the possible economic benefits and costs.

Economic benefits from a merger arise only when the market value of the company created as a result of the merger or acquisition is higher than the sum of the market values of the companies forming it before the merger.

These benefits represent the synergistic effect that has been discussed a lot when considering the motives for mergers and acquisitions of companies. Calculating synergies is one of the most difficult tasks in analyzing the effectiveness of mergers.

If there is a synergistic effect, the merger or acquisition is considered economically justified and we can proceed to the assessment costs for its implementation.

If we assume that when acquiring a target company there is an immediate payment for its market value, then the cost of acquiring a company can be determined as the difference between the cash paid for it and the market value of the company.

Merger costs are the premium, or premium, that the acquiring company pays for the target firm over and above its value as a separate economic unit.

By this amount, the shareholders or owners of the acquired company will receive more in comparison with the market value of their company. But what is a gain for them is a cost for the shareholders of the acquiring company. In most cases, however, the gain for the target (acquired) company is lower than the costs of the acquiring company, since certain amounts are paid to investment banks, consultants, lawyers, and accountants.

The net present value for the acquiring company arising from the acquisition of another firm is measured by the difference between the above benefits and costs.

If the net present value of a merger or acquisition of a company is positive, then the corresponding transaction is economically justified and can be recommended to be carried out.

When analyzing the effectiveness of mergers and acquisitions of companies, it seems appropriate to assess the possible reaction of investors. If the acquiring company's share price falls following the announcement of a deal, investors are essentially signaling to its managers that they believe the benefits of the acquisition are questionable or that the acquiring company is going to pay more than what is required for the target company. .

In addition, it is necessary to keep in mind that in the process of buying a company, a situation similar to an auction often arises, i.e. Buying firms compete with each other. You must be very careful when deciding to participate in such an “auction.” Winning it can be more costly than losing. In case of loss, only time may be lost, and in case of victory, too much money may be paid for the purchased company.

Consequences of mergers and acquisitions of companies

Mergers can improve the efficiency of the merged companies, but they can also worsen the results of current production activities and increase the burden of bureaucracy. Most often, it is very difficult to estimate in advance how large the changes caused by a merger or acquisition may be. But the results of many studies measuring the net effect of already completed mergers and acquisitions give very contradictory, often completely opposite, conclusions.

According to Mergers & Acquisitions Journal, 61% of all mergers and acquisitions fail to generate a return on investment. And a study of 300 mergers that occurred over the past 10 years, conducted by Price Waterhouse, showed that 57% of companies formed as a result of a merger or acquisition lag behind other similar representatives of the market in terms of their development and are forced to again split into independent corporate units1.

Experts usually point to three reasons for the failure of mergers and acquisitions:

incorrect assessment by the acquiring company of the attractiveness of the market or the competitive position of the acquired (target) company;

underestimation of the amount of investment required to carry out a merger or acquisition of a company;

mistakes made during the implementation of the merger transaction.

Acquiring companies sometimes misestimate the assets of the companies they are interested in or their liabilities. For example, you may underestimate the costs associated with upgrading equipment at this company or its warranty obligations for defective products. The environmental protection obligations of the acquired company may significantly affect the effectiveness of the merger. If that company's operations result in environmental pollution, all costs will likely be borne by the acquiring company.

Very often, the required investment to complete a merger or acquisition is underestimated. Errors in estimating the value of a future transaction can be very significant. For example, when BMW took over Rover, the approximate cost of the latter was 800 million pounds, and the investment required in the next five years after the merger was 3.5 billion.

Many mergers that appeared to make economic sense have failed because of mistakes made during the execution process.

Sometimes managers could not cope with the difficulties caused by the integration of two companies with different features of the production process, accounting, and corporate culture.

The value of many companies directly depends on such specific assets as human resources - the professionalism of managers, the qualifications of workers, engineers, and researchers. A change of owner leads to a revision of established criteria for personnel evaluation and career planning traditions, to a change in spending priorities, to a change in the relative importance of individual management functions and, consequently, to a breakdown of the informal structure. In addition, if the managers of the acquired company have a certain stake in its capital, their immediate transformation from owners to employees negatively affects their motivation, and as a result they begin to perform worse. If these professionals do not feel satisfied with their position in the new company formed after the merger, the best of them will leave it.

Analytical studies of mergers that have taken place show interesting results: it turns out to be more profitable to sell a company than to acquire someone else’s. In most cases, the shareholders of the companies that were the sellers in mergers or acquisitions received very significant benefits, while the shareholders of the acquiring company benefited much less. This can be explained by two reasons:

First, the acquiring companies are, as a rule, always larger than the acquired ones. In this case, if the net benefits of a merger or acquisition are distributed evenly between two companies, the shareholders of each company will receive the same profits in absolute terms, but in relative, or percentage, terms, the profits of the shareholders of the acquired company will be much higher.

Secondly, competition between buyers significantly contributes to this process. Each successive bidder for the purchase of the company strives to exceed the conditions set by the previous one. At the same time, an increasing part of the profits from the upcoming merger transaction goes to the shareholders of the acquired company. At the same time, managers of a company that is about to be acquired can take a number of anti-takeover measures, ensuring that the sale of their company, if it occurs, occurs at the highest price possible under the given conditions.

Within large corporations formed as a result of a merger or acquisition, a phenomenon called suboptimization in economic science often occurs. Its essence is as follows: within a corporation, the desire to strengthen intra-group cooperative ties and buy primarily from “our own people” usually prevails. Moreover, each “own” company naturally strives to set a price that brings maximum profit. As a result, either the output product becomes too expensive and uncompetitive, or ordinary commercial negotiations on price levels turn into endless discussions of mutual claims. The more complex the system of cooperative relations within a corporation, the more difficult it is to build and debug a system of transfer prices that satisfy firms at different ends of the cooperation chain.

Mechanism for protecting companies from takeovers

In many cases, mergers and acquisitions are carried out by mutual agreement between the senior management personnel of both companies. However, the practice of hostile mergers is also common. As we have already noted, hostile mergers and acquisitions are mergers in which the management of the target company (target company) does not agree with the upcoming transaction and implements a number of anti-takeover measures. In this case, a company that would like to acquire a company that interests it, bypasses managers, directly addresses the shareholders of the target company. There are two possible ways of a hostile takeover of a company involving its shareholders.

The most common one is direct offer to purchase a controlling stake or else tender offer shareholders of the target company.

Another method is called fight for powers of attorney , since it involves obtaining voting rights for other people's shares, i.e. voting by proxy. In this case, they try to find support among a certain part of the shareholders of the target company at the next annual shareholder meeting. The quest to obtain voting proxies is costly and difficult to emerge victorious from.

Company managers resisting a proposed takeover may pursue two goals:

prevent absorption in principle. This occurs when managers are afraid that they will not be able to maintain their position or even their job in the new company;

force the buyer to pay a high price to take over the company.

When taking over a more or less successful company, especially if there is resistance from managers, a significant share of the funds has to be paid as a bonus to shareholders for losing control. In most cases, the premium ranges from 20 to 40% of the company’s “fair” market price.

In some cases, to mitigate contradictions between companies, managers of acquired companies are provided with so-called “golden parachutes,” i.e. hefty severance pay in case they lose their jobs as a result of the takeover. Most often, these benefits are paid by the acquiring company, but sometimes by the target firm's shareholders to prevent managers from interfering with the acquisition deal. Sometimes such benefits can reach large amounts: for example, Revlon shareholders offered the company's president $35 million.

As a result, given the bonuses to shareholders and the sums spent on providing the management team with golden parachutes, the costs of taking over a company can be excessive. Enormous funds invested in acquisition projects often only lead to the destruction of the property of the shareholders of the acquiring company.

In world practice, a whole system of anti-takeover measures is known that managers use to resist unwanted transactions. In table 3 and table. 4 we tried to summarize the most interesting of them and the most applicable in practice.

Table 3

Basic techniques for protecting a company from a takeover before the deal is publicly announced

Type of protection
Amendments to the corporation's charter (“anti-shark” amendments to the charter)	Rotation of the board of directors: the board is divided into several parts. Only one part of the council is elected each year. A larger number of votes is required to elect a particular director. Supermajority: approval of a merger transaction by a supermajority of shareholders. Instead of an ordinary majority, a higher share of the vote is required, at least 2/3, and usually 80%. Fair Price: Restricts mergers to shareholders owning more than a certain percentage of the shares outstanding unless a fair price (determined by a formula or appropriate valuation procedure) is paid.
Changing the place of registration of a corporation	Taking into account the difference in the legislation of individual regions, the place for registration is selected in which it is easier to carry out anti-takeover amendments to the charter and facilitate legal protection.
“Poison Pill”	These measures are used by the company to reduce its attractiveness to a potential “invader”. For example, rights are issued to existing shareholders that, if a significant shareholder purchases a share, can be used to acquire the company's common stock at a low price, usually half the market price. In the event of a merger, the rights can be used to acquire shares of the acquiring company.
	Distribution of a new class of common stock with higher voting rights. Allows the target company's managers to obtain a majority of votes without owning a majority of the shares.
Leveraged Buyout	A highly leveraged purchase of a company or its division by a group of private investors. The shares of a company that is bought back in this way are no longer freely traded on the stock market. If, when buying out a company, this group is headed by its managers, then such a transaction is called buyout of the company by managers.

Table 4

Basic techniques for protecting a company from takeover after a public announcement of the deal

Type of protection	Brief description of the type of protection
Pacman Defense	Counterattack against the invader's actions.
	Legal proceedings are initiated against the invader for violating antitrust or securities laws.
Merging with the “white knight”	As a last-ditch attempt to protect against a takeover, you can use the option of merging with a “friendly company,” which is usually called a “white knight.”
“Green Armor”	Some companies make a buyback offer at a premium to a group of investors who are threatening to take them over, i.e. An offer by a company to buy back its shares at a price higher than the market price, and usually higher than the price the group paid for the shares.
Conclusion of management contracts	Companies enter into management contracts with their management personnel that provide high compensation for management's performance. This serves as an effective means of increasing the price of the acquired company, because the cost of “golden parachutes” in this case will increase significantly.
Asset restructuring	Purchasing assets that the invader will not like or that will create antitrust problems.
Restructuring of liabilities	Issuing shares to a friendly third party or increasing the number of shareholders. Repurchase of shares at a premium from existing shareholders.

Sources of information for the table. 1 and table. 2:

1. R.S. Ruback. An Overview of Takeover Defenses//Working Paper No. 1836-86. Sloan School of Management, MIT. September. 1986. Tab. 12.

2. L. Herzel & R.W. Shepro. Bidders and Targets: Mergers and Acquisitions in the U.S. Basil Blackwell, Inc., Cambridge, Mass., 1990, Chap. 8.