341907 Takeovers, Mergers and Corporate Restructuring IntroductionThe terms ‘takeover’ and ‘merger’ mean somewhat different things. It is called ‘take-over’ or acquisition when one company ‘acquires’ another and becomes its new owner. The ‘acquired’ company ceases to exist, the buyer ‘incorporates’ the business into its own and the buyer's stock continues to be traded. It is a merger when two firms agree to carry on as a single new company rather than remain separately owned and operated. Both companies' stocks cease to exist separately and new company stock is issued in their place.
The Tata takeover of Corus may be characterised as an ‘acquisition’, while the Chicago Mercantile Exchange’s purchase of the Chicago Board of Trade, may be termed a ‘merger’. Generally, a company which buys another may allow the acquired firm to announce that the action is a merger of equals, even if it is technically an acquisition. A purchase deal will also be called a merger when the management of both the firms agree that joining together is in the best interest of both of their companies as in the case of the Chicago institutions.
Whether a purchase is considered a merger or an acquisition depends on whether the purchase is friendly or hostile and how it is communicated to and received by the target company's board of directors, employees and shareholders. Synergy is the magic word used for improved cost efficiencies of the new business and takes the form of operating and/or financial synergies as reflected in revenue enhancement and cost savings. All mergers and acquisitions have the common goal of creating synergy that makes the value of the combined companies greater than the sum of the two parts.
The success of a merger or acquisition depends on whether this synergy is achieved. We discuss in this paper some aspects of the coming together, through merger or acquisition, of the Chicago Mercantile Exchange and the Chicago Board of Trade on 17th October, 2006 and of the Tata Steel and the Anglo-Dutch steelmaker Corus on 31st January 2007.The October 2006 Merger in Chicago On October 17, 2006, the Chicago Mercantile Exchange announced the purchase of the Chicago Board of Trade for $8 billion in stock, and merged the two financial institutions as CME Group, Inc.
to create the extensive and diverse $25 billion premier global derivatives exchange. The Chicago Mercantile Exchange (CME or "The Merc") was founded in 1898 as a ‘not-for-profit’ organization, but became ‘a for-profit’, shareholder-owned corporation in November 2000, and went public in December 2002. CME is a large and diverse financial exchange in the world and brings together buyers and sellers on its CME Globex electronic trading platform and its Open Outcry trading floors, and offers futures and options on futures primarily in interest rates, equities, foreign exchange, commodities, energy and alternative investment products nearly 24 hours a day.
The Chicago Board of Trade (CBOT) was founded in 1848 and is one of the leading global derivatives exchanges. CBOT provides an assorted mix of financial, equity and commodity futures and options-on-futures products. Using both electronic and open-auction trading platforms, CBOT has provided satisfactory customer service to risk managers and investors worldwide.