Finance

Introduction
The fundamental principle that drives mergers and acquisitions is the reasoning that two companies are worthwhile together than when they are separate.  Although the terms are almost used synonymously, they mean slightly different things. Acquisition occurs when one firm takes over completely another firm and becomes the new owner. The firm being acquired target company in essence is swallowed up by the acquiring company and it ceases to exist. A merger on the other hand occurs when two firms willingly agree to combine their resources and move forward as a single company. This mode of coming together is lightly referred as a merger of equals since the two companies gets into the deal in their own terms. Based on the perspective of business structures, there exist a variety of mergers which are distinguished by a myriad of factors, primarily that of the relationship between the firms intending to merge (Scott, 2003). For the sake of this study, five types of mergers will be analyzed namely horizontal mergers, vertical, conglomeration, spin offs and divesture mergers.

A horizontal merger is defined as the merging of two firms producing similar products or services and that are in the same stage of production. As such, horizontal mergers bring together two competitors. The resultant firm gains the ability to control a great market share and theoretically, it gain economies of scale. A good example is when a steel company mergers with another steel company (Scott, 2003).

A Vertical Merger on the other hand refers to a merger where firms in the same industry but on different stages of production come together. For instance, a production firm can acquire its supplier firm or an automobile firm can purchase a tire manufacturing company etc. A vertical merger is credited as being efficient in eliminating redundant processes and therefore increasing the profitability of the resultant firm.

A conglomerate merger is one where the acquiring firm purchases another firm or firms in largely unrelated industries. An example is when an oil company acquiring a steel company. On the other hand, a divestiture is a type of acquisition where a company sells the whole of the company or its entire product line for securities or cash. A spin off refers to a transaction where a parent company creates a new legal firm as a subsidiary and distributes the shares of the new subsidiary to its existing shareholders in the form of stock dividend (DePamphilis, 2010).

Analysis of Examples-Horizontal Merger
The merger in 2006 between Gillette and Proctor  Gamble was a horizontal merger.  The two companies were both in the same industry and the same product line in household products. The merger, rated as one of the biggest mergers in recent history brought together the Cincinnati based PG and Boston based Gillette. The merger combined 85,000 suppliers from PG with 26, 000 from Gillette, 110,000 employees for PG and 30,000 from Gillette as well as combined revenues of 51 billion for PG and 9.8billion for Gillette. The predominant issue behind the merger was to increase the synergy of their business activities in the resultant market. The merger was able to pool vast varied resources, both physical and human in achieving the common goal of the resultant firm. In addition, the merger was made to avail the positive points derived from the economies of integration. Further, the merger was hoped at making the firms more cost-efficient by streamlining the production and distribution costs of the two companies.

Vertical merger
A recent vertical merger in the US was the acquisition of US Dyeing  Finishing, Inc by the American Apparel, Inc. in May, 2008. The US Dyeing  Finishing Inc. facility located in California, Garden Grove had been performing contractual work for American Apparel for approximately 10 years. According to Marty Bailey, the then chief manufacturing officer at American Apparel asserted that the predominant issue behind the integration was reduce the companys reliance on contractual dye facilities and thus be able to expand the companys product offerings, lower costs, ensure better quality as well as streamline the companys supply chain (American Apparel, 2008).

Conglomeration
Mergers through conglomeration were primarily practiced in the 1980s and have since been replaced by the other types of MA which have been seen to concentrate more on the core competencies of a business. However, there are still notable major conglomerates that have occurred in the US business world since 2000. The most notable was the creation of NBC Universal in May 2004 through a combination of Vivendi SA, a French media group and General Electrics subsidiary NBC. Although NBC was initially formed as a diversified field by General Electronics, the deal is seen as a conglomeration considering that GEs original business line was in electronics. The merger blossomed up to 2009 when Vivendi reported that it was to sell the 20 of its stake to another company, Comcast, a media company based in Philadelphia. The final merger between GE and the 20 stake purchased by Comcast from Vivendi would essentially be another conglomerate in the making considering GEs diversified business interests. The 20 by Vivendi to Comcast was valued at approximately  5.8billion (NationMaster.com, 2010). It is important to note here that most of these involve international transactions in form of international mergers and acquisition. The value of these transactions reduced significantly in 2009 representing 25 of the global MA compared with 26 and 27 in 2008 and 2007 respectively (Ellis, 2010). In general, analysts are of the opinion that conglomerates activities have reduced significantly in modern times especially due to the complex environments surrounding different lines of business. In light of the recent economic meltdown, many companies chose to invest in less complex activities that posed a minimal risk to their businesses.

Divestures in the US
As mentioned above, a divesture is a transaction where a company sells the whole of the company or its entire product line for securities or cash. One of the most recent divestures on record was on February 2006 when Sulzer Pumps which owned the Paco Pumps Business sold the entire Paco pumps business to Grundfos Group. The selling price was approximated at  24 million (Sulzer, 2010).

In 2009, divestures constituted 68 of the total global MA activity which constituted a significant increase in this type of MA. Generally, divestures represented the biggest performer and it had outpaced the general mergers and acquisitions market. In a PWC report analysis, the increase in divestures could be attributed to a sour economy that depressed complex activities such as conglomerates which generally are complex and requires more time to execute (Leone, 2009). In a report released by Deloitte Corporate Finance, LLC in November 2009,  their analysis indicated that divesture performance since 2007 had remained strong recording a 1.5 increase despite an overall 8 decline in the MA transaction volume over the same period (Deloitte, 2009).

Spin Offs in the US
As mentioned earlier in the study, a spin-off is a transaction where a parent company creates a new legal firm as a subsidiary and distributes the shares of the new subsidiary to its existing shareholders in the form of stock dividend. Unlike in other types of MA activities that are theoretically associated with complexities, companies wishing to spin off parts of their businesses do it at comparative ease. In the recent past, a major spin-off announced by an American company was by NTPIA Corporation Co. Ltd which announced on June, 2008 that it had finalized spinning-off its semiconductor Design division and established it as a new subsidiary wholly owned by the company.  According to Reuters (2008), the spinning off saw 22, 511, 958 shares issued to the companys existing shareholders (Reuters, 2008). The main driver behind the spin-off was to improve efficiency through creating room for business specialization.

In terms of valuation, some of the biggest MA activities recorded in the last 3 years include the 2009 Pfizer Inc.  Purchase of Wyeth which cost approximately 68,000 million. In 2008, the acquisition by Inbev Inc of Anheuser-Busch Companies, Inc was approximated at 52,000 million. In 2006, the acquisition by ATT Inc of Bell South Corporation was approximated at 72,671 million (Benjamin, 2006)

Trends in MA
The 2008 financial crisis has been rated as one of the most fundamental influencer in the way different mergers and acquisitions will occur in the future. Due to the crisis,. Global mergers and acquisition value dropped by 15 to 3,621 billion in 2009 compared with 5,610 billion in 2007 and 4,242 billion in 2008. In the reduction, value of MA was significantly sharp considering that the drop in volume was only by 2 (Ellis, 2010).

Some of the identified trends that are expected to be visible in the diverse types of MA includes the emergence of a new buyer market that are different from the pre-crisis buyers, most of whose acquisitions performed poorly in the financial crisis period. In addition, parties interested in MA are expected to focus on dispute resolution measures during transactions. This implies that M A efforts will be marked by rigorous negotiations including choice of forum or choice of law provisions. It is also predicted that sellers, faced by a myriad of financial pressures and the lack of multiple buyers will prefer to speedily execute their transactions avoiding too much exposure of the transactions (Hogan et al, 2008). In addition, there has been and there will be increased trends towards international mergers and acquisitions as well as an increase in spin offs and divestures.  Mergers ands acquisition are approximated to cost a great deal of financial resources and as such, firms in the future avoiding excess financial undertakings will prefer to restructure through the divestures and spin offs which are considered as averagely simple and non-taxing.