The world economy is moving steadily in the direction of globalization, and Russia is no exception. The leaders of various enterprises are making significant efforts to strengthen the capital of their structures. It is this fact that determines such processes as mergers and acquisitions of companies. Such a strategy can significantly increase the level of efficiency and bring the organization to new horizons of large business.

The essence of the process

Speaking very simply about this topic, we can imagine the merger procedure as follows: several separate and independent enterprises are combined into a single company. But in such a situation, one organization, as a rule, acts as the dominant one, since it has the most powerful capital and economic potential as a whole. It is from her that the initiative for the merger comes. At the same time, it is worth understanding the fact that the shareholders of those enterprises that took part in the merger retain their shares, only the name of the company changes, but not the amount of dividends.

It is also important to understand that processes such as mergers and acquisitions of companies have some differences.

When one company absorbs another, it redeems all shares or their main part from the shareholders of the organization merging into the main, dominant enterprise. This means that those who owned a certain share of the capital in the acquired structure lose it after the completion of the acquisition procedure.

Modern approach

Initially, as described above, there are two key goals of a merger: the acquisition of new competitive advantages within a particular market and an increase in the welfare of shareholders.

It should be understood that, regardless of what kind of joint-stock company we are talking about, the algorithm for the development of the company will inevitably come to the point when the need arises for an acquisition or merger. In today's market economy, without such a strategy, it will be extremely difficult to take a leading position among active competitors.

If the company is not yet ready for such drastic measures, then you can choose a different path. We are talking about the use of such internal methods as the introduction of new technologies, improving management efficiency, as well as the quality of labor organization. Modern business schemes can also be attributed to this category.

At the same time, external methods, which include the merger of companies, are quite popular in the segment of medium and large businesses.

Action strategy

There is a certain algorithm on the basis of which a successful takeover or merger procedure can be carried out. These are the following steps:

• competent choice of the organizational form of the transaction;
• the availability of the necessary financial resources to carry out a full-fledged procedure for combining companies;
• conducting the transaction in such a way that it does not violate any requirements of the antimonopoly law;
• if it was decided to start the process of merging companies, then it is necessary to determine as soon as possible who will occupy a key leadership position;
• it will also require the most effective inclusion of both top and middle management specialists in the process.

If you thoroughly approach the implementation of these steps, then the merger procedure will be painless.

When takeover is most relevant

It makes sense to touch in more detail on the main motives for launching such processes. You can start with the situation when a particular firm needs a significant reduction in the risks that are possible within the framework of its core business. To do this, a merger of two or more companies can be carried out, moreover, from different market segments. The merger or acquisition of several enterprises makes it possible to produce various types of products, while using such a tool as geographic diversification in the process of marketing finished goods or raw materials. This strategy allows the main company to significantly expand the scope of its presence.

An actual merger of companies may be in the event that the company reconsiders the priority of key activities. At this stage, new relevant production areas may appear, replacing the old ones that have become unprofitable.

Finally, a takeover can be a good strategy for a company that is doing well in a particular industry but still needs to strengthen its own position to gain the desired competitive advantage. In this case, the merger is made with organizations operating in the same segment as the acquiring company.

Types of company mergers

There are many forms that the merging of several organizations into one can take. The same can be said about absorption. Here are the most common ones. They will be discussed.

First, it makes sense to mention conglomerate and generic mergers.

The first type characterizes this type of association, in which companies that do not have any commonality on a production basis merge. That is, we are talking about enterprises from completely different industries. This means the absence of any connection (competition, consumption and supply of goods).

When structures without technological and target unity are combined in a conglomerate format, this often leads to the abolition of the main activity of the integrating enterprise. Instead of a key profile, many equal directions of production appear.

A generic merger of companies looks somewhat different. In this case, it should be understood that we are talking about enterprises that produce interconnected product groups. An example is the merger of a company producing mobile gadgets with an enterprise specializing in digital technology as such.

When management disagrees

Another group of mergers, defined in relation to the transaction of managerial personnel, is friendly and hostile associations. In the first case, the initiative of such a process is supported by both the heads of organizations and the shareholders of both enterprises.

But the hostile form implies that the planned transaction does not receive the approval of the leadership of the structure that should be absorbed. As a result, certain anti-seizure measures can be taken. With such a reaction, the owners of the initiating company begin an aggressive game in the securities market, aimed at absorbing the target.

National and transnational format

It is worth noting that sometimes the merger of companies can take place within the framework of the 50/50 principle. But the experience of many firms has shown that such a parity model of integration is extremely difficult to implement.

Now for the national merger. This term is used to define the combination of companies that are located in the same country.

The definition of transnational integration is used to describe the merger of enterprises located in different states.

Vertical and horizontal type

This direction is determined depending on the nature of the merger.

The image of the vertical is used to describe integration, in which companies from different industries that have a common technological process for the production of finished goods are combined. In other words, the firm initiating this process extends the subsequent production stages to the end consumer, or the previous ones up to work with sources of raw materials. An example is the integration of metallurgical, machine-building and mining enterprises.

The horizontal merger of companies is distinguished by the fact that the specifics of the activities of the structures completely coincide within the industry, the direction of production and its various stages, inclusive.

Association methods

If we take into account exactly the way in which the integration of companies is carried out, then two key areas can be distinguished:

1. Corporations. This type of merger is used when it is necessary to merge all the active firms that are involved in the transaction.
2. corporate alliances. In this case, we are talking about the takeover or merger of two or more companies whose activities are deployed within a specific type of business. Such a transaction allows, as a result, to obtain a synergistic effect only in the direction of this type of activity. As for other production areas or types of services, the dominant organization is engaged in them independently, without involving additional resources from outside. Separate structures can be created to organize alliances.

The most striking examples

Acquisition initially implies a procedure that should ultimately give the dominant company a significant competitive advantage. Nevertheless, there are also cases when the merger of sufficiently serious firms ends in failure.

Considering the largest mergers of companies, the first example is the 2001 acquisition of the AT&T division by the media conglomerate Comcast. This allowed the latter to take one of the leading positions in the United States in the cable television market. This process required quite serious expenses in the amount of 76.1 billion dollars. This strategy of buying out the selected company piecemeal has had a tangible positive effect.

Competent actions of Comcast led to the fact that at the same time there was a neutralization of a key competitor in the field of activity relevant to them and an increase in the quality of services provided by expanding the geography of the cable network.

To better understand what consequences a merger can generate, examples of the negative outcome of such a process should also be studied.

One of the most costly and unsuccessful was the merger of AOL and Time Warner Cable. More than $180 billion was allocated by AOL to conclude this deal. Initially, everything looked more than promising, but in the end, both companies dropped out of the list of leaders within their segment. As one of the key reasons for the collapse of the Internet giant AOL, experts cite the loss of financial flexibility after carrying out an excessively costly merger procedure.

Now we should return to successful transactions and pay attention to the merger of Mobil and Exxon. In principle, at first glance there is nothing interesting here. But if you delve a little into the history of these enterprises, you can find out that initially they were one entity, until 1911 being part of the Standard Oil Company, owned by John Rockefeller. The long-standing division occurred on the basis of an antitrust court verdict. As a result, the once fragmented capital united again, although only partially. But even this was enough to obtain powerful competitive advantages.

How are things in Russia

On the expanses of the CIS, the merger of large enterprises takes place somewhat differently than on the Western market. If we try to highlight the most common format in which the merger of Russian companies is carried out, then it makes sense to pay attention to the integral form.

In the current crisis of non-payments, vertical associations provide one key advantage - to neutralize such a problem as receivables. With the help of such transactions, production tasks are also solved.

It is also important to note the fact that the merger of Russian companies in the vast majority of cases is markedly politicized. Such transactions are used within the interests of representatives of the local administration or higher levels of government.

Merger Features

A surge in associations of various kinds in Russia was recorded throughout 2003, when it reached a total level of $22.9 billion. But in the following year, this figure dropped slightly.

When it comes to various kinds of mergers, the state often acts as the main player. Basically, the enterprises operating in the oil and gas sector, as well as in the segment of metallurgy, are taken into account.

As for the interests of foreign enterprises, they also choose representatives of the oil and gas industry for integration, but do not forget about the food sector.

What does a merger look like in Russia

As one of the clearest examples of the merger process in the CIS, one can cite the experience of such an enterprise as UMMC-Holding LLC. This company has consolidated 10 processing, non-ferrous and ferrous industries. At the moment, the sphere of direct influence of the UMMC includes the control of 22 companies located in 7 cities of the Russian Federation. This also includes the Litaskabelis plant operating in Lithuania (Panevėžys city).

The key goal for which numerous merger procedures have been initiated is to increase the company's market share. It was the integration that allowed UMMC to create additional production facilities in a relatively short time. Also, investment risks were significantly reduced, since only those companies, whose functioning was verified by the real market, joined.

Results

In today's economy, mergers and acquisitions are a relevant dynamic development prospect for many companies that have ambitions, but do not have sufficient capacity.

At the same time, it is worth mentioning that integration is a risky process. In case of unsuccessful forecasts, it is possible to suffer such financial losses, after which the enterprise will no longer be able to recover.

The current system of production, trade and consumption is based primarily on large national and international companies. Giant corporations produce 65 to 75 percent of the world's GDP. The slogan “more is more profitable” applies not only to the acquisition of household chemicals, but also to the business, so the size of the company is inextricably linked to its profitability, sustainability and efficiency. After all, it is known that it is profitable to buy raw materials in large quantities, and international business giants are not subject to political crises in individual countries. To develop your company to the scale of the planet is the goal of every far-sighted and ambitious leader.

There are different ways to expand companies, and one of them is a merger and acquisition deal, or, as it is also called, M&A.

What is an M&A deal? In English, this abbreviation stands for mergers and acquisitions, which literally translates as mergers and acquisitions. This is a set of measures aimed at integrating one company into another, merging them or merging a number of companies. The goals of such operations can be different - expanding the company, acquiring new retail space, optimizing production, in particular by improving the supply chain of raw materials and delivering the final product to the consumer.

There are several types of mergers and acquisitions:

• Horizontal. Such mergers and acquisitions are carried out between companies producing the same product in order to expand the scale of production and marketing. It is believed that this is done to destroy competitors, but this is not entirely true. Rather, such acquisitions provide additional opportunities, expand the sphere of influence. For example, a large chain can buy existing stores with the same assortment (shoes, phones, groceries), change the sign, rebrand and continue to provide customers with the same services, but under their own brand. This is beneficial because the company does not look for new customers, does not try to find a niche in an already crowded market, but “buys” a client along with a competitor.
• Vertical. These transactions are designed to make the production and supply process more profitable and controllable for the manufacturer of the goods. For example, a clothing company acquires factories for the production of fabrics, accessories, sewing machines, stores to sell its goods and a forwarding company to deliver them. Thus, the corporation becomes independent, independent of suppliers and transport companies. The cost of raw materials itself also becomes cheaper due to the lack of “cheating”, the cost of the product is reduced.
• Conglomerates. They combine companies with different types of goods and services that are not related to each other. For example, it can be a fish canning plant, a courier service, and a metallurgical enterprise. Such a community is convenient because it helps one of the partners to stay afloat in case of temporary difficulties associated with a loss of interest in the product being produced or a crisis in a particular industry.
• parallel mergers. Produced between enterprises that produce goods that are part of the same process or related goods. For example, enterprises for the extraction and enrichment of coal.

Why are mergers and acquisitions necessary?

As you have already noticed, the priority goals of mergers and acquisitions can vary depending on their type. But in general terms, they are present in all cases of M&A transactions.

First of all, any acquiring or merging company seeks to synergy effect- more efficient work due to mutual reinforcement. This effect can be demonstrated using the formula 1+1=3. So, after the merger, two companies can significantly reduce the cost of managerial staff by abolishing the same positions, merge some departments into one. In addition, all companies in the conglomeration can learn from each other's best practices: for example, one has developed a more efficient accounting system, another has developed logistics, and a third has developed human resources. By bringing together all the most successful developments and implementing them in management after the merger, you can achieve accelerated growth in profits and optimize operations as much as possible. When merging, it is also beneficial to combine different resources that new enterprises bring with them - raw materials, specialists, a ready-made brand, technologies. In addition, with the increase, the company becomes more competitive and stronger.

Stages of an M&A deal

1. To begin with, it is necessary to assess the attractiveness of the transaction itself - will it bring benefits or will the absorbed object become dead weight? Is the company ready at this stage for integration with another business entity? Will this cooperation be successful for all its parties? Sometimes a decision on a merger or acquisition is necessary to save the company - here you also need to analyze whether the method of overcoming the crisis that the company needs is chosen. There is much to think about on both sides of both a merger and an acquisition. Buying a competitor always incurs additional financial and organizational costs, and the weaker acquired party is on the verge of big changes - a change in leadership, changes in processes, loss of independence. At this stage, the company is assessed and a verdict is made on the appropriateness of a merger or acquisition designed to increase the value of the final object.
2. After the decision is made, the search for partners begins, the buyer looks for a target for absorption, candidates are selected for the merger of the two companies. Now we need to analyze the compatibility of the two future components of one whole, the possibility of their quick and painless integration. An assessment is made of the prospects for joint development, an analysis of the sales market, the names and quality of manufactured goods, and the possibility of the necessary reorganization.
3. The third stage is a more in-depth continuation of the second. When the target is selected, a thorough analysis of all assets is made, the costs of acquiring and integrating the object, the estimated value of the company after consolidation are calculated.
4. Next comes the negotiation stage. There are two ways to take over the selected company. The first, the fastest and most convenient for everyone, is negotiations, the logical conclusion of which is the conclusion of a deal. If the target company does not want to enter into consolidation, then the absorber begins to buy shares and assets of the object in order to use them as leverage for further influencing the owners of the company. When concluding any deal, it is important to think through all the details in advance, especially if negotiations take place on neutral territory: take care of reliable transport and a comfortable meeting room. When planning a partnership, every little thing counts.
5. When the deal has been completed, it remains to officially announce the merger and begin the integration process. Its duration and complexity depends on how different the initial indicators are, and what result the management plans to achieve: full, partial or minimal integration.

How not to make a mistake when expanding a corporation?

There are always M&A risks arising from a lack of specificity in the buyer's goals and unpreparedness for some of the inevitable processes.

1. Human factor. The absorber will definitely face the reaction of the staff of the absorbed company - some of the specialists may leave, the other part will not wish to support the policy of the new management. It is necessary to decide in advance whether the new owner is ready for the loss of employees, whether he will take the necessary measures to minimize the negative consequences. Or personnel is one of the acquired resources and they need to be retained with the help of promotion, salary, career prospects.
2. Business understanding. In the modern business world, conglomerations of the same type or similar types of companies are most common. And not in vain - in order to effectively manage a designer from companies acquired at different times, you need to be able to competently introduce them into the canvas of your own business. And for this it is necessary to deeply and in detail understand all the intricacies of the work of a particular enterprise. When buying a new object, it is important to know how it functions in detail.
3. Leave the brand? This decision is of great importance, since the full integration of a company with a promoted brand and a long history into its structure may lead to not quite the expected result - after all, part of the purchase price was formed precisely due to the popularity of the trademark. Depriving an integrating company of a name is sometimes the same as throwing assets into the trash can.
4. What exactly is expected from an acquisition or merger? Each specific company is acquired not just for the purpose of expansion, but for the purpose of expansion in a certain direction. There can be a lot of options - an increase in retail space, the use of new equipment, technologies, patents, personnel, trademarks. A company is bought for one or two points, it cannot bring everything with it at once. But it will adopt the missing qualities from the absorbing company. Whether this acquisition is profitable, whether it is able to give the buyer the desired result, is decided in the process of preliminary analysis.
5. To keep the chicken from eating the fox. It is necessary to clearly understand which of the companies is leading. It happens that the acquired enterprise is stronger in terms of personnel and technology, but has experienced difficult times due to incompetent management or dishonest financing. Having received the necessary replenishment, the embedded company can be on top and crush the absorber. To prevent this from happening, you need to track the potential of the target and carry out a series of reorganizations aimed at mutual reinforcement, and not just at strengthening the absorbed object.

M&A transactions are a good opportunity to expand the corporation through existing structures, take advantage of the useful developments of the purchased competitors and strengthen your business. This is not an easy process that requires deep analysis and careful preparation. With proper planning and implementation of the entire range of events, a merger or acquisition will be an opportunity for further growth and prosperity of the company.

Overview of methods and tools

Alexander Molotnikov
Head of Corporate Governance Department
OAO FPK Slavyanka, Vladimir

With the development of market relations in Russia, domestic entrepreneurs faced the problem of expanding their business. In different time periods, this task was solved in different ways: if in the early 90s the necessary assets, as a rule, were acquired in the process of privatization of state property, now preference is given to more complex methods and techniques. This article will discuss the most effective options for the acquisition of companies, as well as specific cases of their application.
Final goal any takeover - access to the assets of a particular enterprise. The set task can be achieved in various ways: both directly - to acquire ownership of the property of interest, and indirectly - to become the owner of a controlling stake in a company that has this property on its balance sheet.

Currently, the most widespread are three main options for the acquisition of companies:

Establishing control over the management of the enterprise or a person representing the interests of the owner of a large block of shares;
Acquisition of a controlling stake;
Bankruptcy of the company with the subsequent acquisition of its assets.
First way usually used in relation to state-owned (municipal) enterprises or business companies, the main shareholder of which is the state. In this case, a third-party company simply bribes the managers of the enterprise, and also, in the case of a business company, a person representing the interests of the state at general meetings shareholders (as a rule, an official of the Ministry of Property Relations and regional property management committees). This method is very convenient when a third-party company is unable to either acquire a controlling stake (the state is not going to part with the shares of the company in the foreseeable future) or bankrupt the enterprise - hardly anyone will dare to challenge the federal or regional authorities. In addition, if the state nevertheless decides to sell its stake in the company or privatize the state-owned enterprise, a company that has an “informal” relationship with the management team of an economic entity will have a huge advantage in the struggle for the assets being sold. A significant disadvantage of this method is dependence on specific officials (in the event of a change in management or a person representing the interests of the state), as well as the lack of registration of ownership of property or company shares.

Sufficiently reliable protection against such a collusion between the management of the enterprise and third-party companies can be the annual replacement of persons representing the interests of the state at general meetings of shareholders, as well as representatives on the Board of Directors of the company (often these persons represent state interests for several years, which cannot but provoke so-called "informal contacts" with interested structures). An important detail is the careful selection of persons applying for the positions of heads of state (municipal) enterprises, the purpose of which is to prevent the appointment of persons associated with various kinds of vertically integrated companies, as well as other types of commercial organizations, to managerial positions.

Second way most effective in terms of legal guarantees for an expanding company. Indeed, if you legally competently conduct an operation to purchase shares of an economic entity, then you can not be afraid that interested parties will challenge your actions in the judiciary. In addition, the shareholder-owner of a controlling stake has the right to officially make decisions on almost all issues of the company's activities, i.e. feel like a full owner. This method is most often used in the course of friendly takeovers, when the company's shareholders agree to sell their shares to an outside investor.

However, the application of this method is significantly complicated by the high costs of acquiring the company's shares. The fact is that when determining the value of a controlling stake in even a medium-sized Russian enterprise, the account will go to millions of dollars, to say nothing of larger legal entities. In addition, the unwillingness of the owner of the controlling stake is likely to sell his business. In such a situation, you will have to look for non-standard ways to solve the problem.

It is known that the domestic practice of corporate governance has developed a wide range of methods for intercepting control in companies. In particular, if no single shareholder has a controlling stake (assuming that the largest shareholder controls only 40% of the voting shares), buybacks of shares from individuals are organized, as well as attempts are made to purchase shares from legal entities, which are usually reluctant to part with their securities. If shareholders do not want to sell their shares, they usually use one of the following methods:

· issuance of a power of attorney to represent the interests of a shareholder at general meetings of shareholders;
transfer of securities to trust management.
In the first case, the shareholder trusts to represent his interests to an individual or legal entity at general meetings of shareholders. It should be taken into account that the maximum validity of the power of attorney is three years. Of course, in order to convince shareholders to issue powers of attorney, it is necessary to use various means (campaigning with the help of people respected at the enterprise, monetary incentives, articles in the local press).

As a way out of this situation, you can use the procedure of trust management. In this case, the shareholder (management founder) transfers the shares of a commercial organization or individual entrepreneur (manager) belonging to him to trust management. Such a transfer is formalized by a trust management agreement. It should be noted that the conclusion of an agreement is possible only if the manager has the appropriate license, because. the object of management will be securities. The contract in question is concluded for a period of not more than five years. Of course, the shareholder can refuse the contract, but then he will have to not only warn the manager three months before the termination of the contract, but also pay the latter a remuneration (thus, the initiator of the takeover is given time to adjust the line of conduct in the light of, for example, the mass termination of contracts trust management).

The third way. Of course, both the issuance of powers of attorney and the conclusion of trust management agreements do not provide a third party with full control over the assets of the enterprise. That is why it makes sense to apply the following scheme, which was successfully used in relation to OJSC X by company Y, which managed to accumulate more than 50% of the voting shares of a business entity. At the same time, the conclusion of trust management agreements, the receipt of powers of attorney, the acquisition of shares was carried out not by company Y, but by individuals controlled by it (moreover, the mentioned persons were not legally connected with company Y in any way).

· At the first stage, an extraordinary general meeting of shareholders of JSC X was held, during which a new Board of Directors of the company was elected. Result: more than half of the members of the Board of Directors (6 out of 11) are controlled by company Y. In addition, a new CEO was elected at this shareholder meeting, also representing the interests of company Y.
· At the second stage, after a significant strengthening of the position of the specified legal entity, direct work began with the property of the company. As you know, the general director can independently conclude transactions for the alienation of the company's property if its value does not exceed 10% of the book value of the assets. Consequently, the director who initiated the asset stripping faced a major hurdle, which was nevertheless overcome. According to the law "On Joint Stock Companies" and the Charter of JSC X, the decision on the company's participation in newly created commercial organizations is made by the Board of Directors by a simple majority of votes. With control over six of the eleven members of the Board of Directors, Company Y has no difficulty in pushing such a decision through this governing body. JSC X establishes JSC Z, the second founder of which is company Y, while JSC X receives 24% of the voting shares of the company being created (which is very important, because this is not even a blocking stake).
· It was assumed that, as payment for shares, OJSC X would transfer a significant part of its property (the most valuable real estate, equipment, etc.) to the authorized capital. Due to the fact that the value of the transferred property amounted to 47% of the book value of the assets of OAO X, it was necessary to obtain the approval of the Board of Directors, and the decision had to be taken unanimously. Of course, members of the Board of Directors, representing the interests of another major shareholder, blocked such a decision. However, no one expected their support.
· Acting in accordance with the Law on Joint Stock Companies, the members of the Board of Directors controlled by company Y, by a majority of votes, decided to hold an extraordinary meeting of shareholders, which should have approved the said transaction (a simple majority of shareholders' votes was sufficient). The preparatory stage for the General Meeting was the most difficult and responsible. The fact is that it was necessary to prevent the second major shareholder from convincing minority shareholders to terminate the issued powers of attorney and concluded trust management agreements. Without going into details, we state that company Y managed to retain control over more than 50% of the voting shares of company X. Thus, the general meeting of shareholders approved the alienation of the property of JSC X, transferring the assets of interest to company Y under the control.
(In the case under consideration, the main thing is that when making a transaction for the alienation of property on the part of the management bodies of the company, there should be no interest in the transaction. That is why there should be no connection with company Y of the shareholders of the company, members of the Board of Directors, the General Director. The fact is that the procedure approval of an interested party transaction is much more difficult than the approval of a major transaction).

· Subsequently, company Y, together with JSC Z, establishes JSC A (in this case, the already familiar share capital structure was established: company Y - 76% of the shares, JSC Z - 24%). As payment for the shares, OJSC Z transferred to the new business entity the same property previously owned by OJSC X.
· Thus, company Y, not owning a majority of the voting shares of OJSC X, placed under its control the most significant assets of the company, having carried out the entire operation legally competently and leaving no hope for its competitors to return the withdrawn assets.
After analyzing the above situation, we can single out the following mistakes of the “old” management bodies of JSC X, which led to a hostile takeover of the company’s assets:

· the shareholder owning 40% of the voting shares of the company did not increase his share in the share capital structure to 50% + 1 share, confidently believing that the existing shares are sufficient to maintain control over the enterprise;
when the purchase of the company's shares began, accompanied by the receipt of powers of attorney and the conclusion of trust management agreements, the specified shareholder and the management of the company controlled by him delayed the decision to buy back the shares, and also did not conduct a much-needed campaign to discredit the third-party investor in the eyes of ordinary shareholders (as a rule, it is easier for the current management to convince shareholders);
· The charter of JSC X did not provide for the possibility of making a decision on a major transaction by a qualified majority (3/4 votes), which would not allow third parties to alienate property.
It was these management miscalculations that allowed company Y to seize the property of JSC X and significantly reduce the financial and economic performance of the company.

No matter how attractive the above ways of acquiring companies are, we have to admit that they are not most often used by domestic entrepreneurs. The current reality is that more profitable to apply for bankruptcy in relation to the enterprise of interest, rather than to acquire its shares or carry out such an unreliable procedure as bribing management.

The main advantage of the bankruptcy of a commercial organization is the low costs of implementing such a model. Indeed, why buy shares of an enterprise, spending significant amounts of money, if it is possible, by spending an order of magnitude smaller amounts, to obtain the necessary assets (of course, in this case, the costs will consist, as a rule, of the so-called "monetary subsidies" sent to officials of regional authorities , judges of arbitration courts, as well as arbitration managers). At the same time, this method is also used in the case when the owner of the controlling stake in the company does not intend to sell it to third parties.

The following bankruptcy scheme is most often used.

· A certain legal entity interested in acquiring the assets of a business company begins to systematically buy up the debts of this company. In this case, it is not necessary to pay for the purchase in full, installment payment is usually applied. It's no secret that finding an overdue debt even with a well-established enterprise is quite easy. What can we say about the bulk of economic entities.
· Having concentrated a significant amount of debt, a legal entity initiates the bankruptcy procedure of the enterprise, having previously “agreed” with the regional and (or) federal authorities (depending on the significance of the enterprise). The operation is calculated in such a way that the absorbed company is obviously unable to repay the existing debt, which results in the introduction of a monitoring procedure and the appointment of a temporary manager. The arbitration manager secretly represents the interests of the attacking legal entity and, under the guise of analyzing the financial condition of the debtor, establishes “bottlenecks” in the activities of the enterprise in order to aggravate the current situation, as well as prevent the company's management bodies from restoring the solvency of the enterprise. At the same time, the mass media are beginning to form a negative image of the economic society, leading to a decrease in the sale of manufactured products, and, consequently, to a deterioration in its financial situation.
· As a result of such actions, external management is introduced at the enterprise, after which the head of the debtor is removed from office, and the powers of the governing bodies are terminated. All management functions are transferred to an external manager. It is from this moment that the long process of withdrawing the assets of the organization begins. In this case, an important role is assigned to the stage of bankruptcy proceedings, when the property of the debtor is sold in order to satisfy the requirements of creditors.
· However, it is possible not to bring the case to the last stage of bankruptcy. In the process of external control, the attacking legal entity may apply to the shareholders of the company with an offer to sell their shares. Thus, shareholders are faced with a choice: either to refuse and be left with nothing, or to sell shares and receive, albeit small, but money. Having accumulated more than 50%, and preferably more than 75% of the voting shares of the company, the legal entity begins to actively restore the solvency of the enterprise in order to terminate the bankruptcy proceedings.
If shareholders do not want to sell shares, the following methods can be applied:

exchange of debts for shares of a newly created company;
additional issue of the debtor's shares.
The first method is absolutely legal and finds full support from arbitration courts and other state bodies.

So, the external manager, exercising the powers of the debtor's management bodies, with the consent of the meeting of creditors, creates an open joint-stock company. The authorized capital of the new enterprise is formed at the expense of the debtor's assets cleared of debts. Creditors, on the other hand, accept shares of a new business entity as debt, thereby repaying their claims against the debtor (during this process, the main thing is to accumulate as much debt as possible, since the number of shares received depends on this, and hence control over assets ). It is important that the consent of the shareholders of the debtor is not required, because. the exchange of debts for shares is recognized as one of the possible conditions of a settlement agreement concluded at the stage of external management by an arbitration manager and creditors.

Persons using this scheme proceed from the fact that in the course of external management, all the powers of the company's management bodies (including the general meeting of shareholders) are transferred to the arbitration manager. Consequently, the manager may decide on an additional issue of the debtor's shares. The additional issue is carried out in such a way that the organizers of bankruptcy have a controlling stake in the company, which allows them, after the restoration of the company's solvency, to make any management decisions in relation to the company's assets.

Exists ways to counteract the initiation of bankruptcy of an enterprise:

Prevent the company from having overdue accounts payable;
· monitor the company's creditors, paying particular attention to transactions with the company's debts;
· if there is indirect evidence of the beginning of the process of initiating bankruptcy proceedings, it is necessary at all costs to try to pay off the debt that has arisen;
· before initiating bankruptcy proceedings, start the process of asset withdrawal using multi-way schemes associated with the creation of subsidiaries, followed by the sale of their shares to individuals controlled by the management of the main company, but not legally connected with it;
· to try to convince the relevant state authorities that such bankruptcy is unprofitable for the economy of the corresponding subject of the federation, and possibly a certain industry.
Thus, it becomes obvious that the practice of corporate conflicts has developed a wide range of different methods of interception of control. Some of these techniques benefit both the initiator of the takeover, and the acquired company, and the region in which it is located. At the same time, the use of dishonest methods of corporate struggle, coupled with short-term goals, benefits only individual attacking companies, significantly destabilizing the social situation in a particular region.

Mergers and acquisitions or M&A (eng. mergers and acquisitions) is a term with a broad meaning. It is customary for them to designate transactions for the purchase or sale of businesses or companies. We will call such a business or company a goal or a target company, which is a tracing paper from the English target. Let's try to understand the definition of an M&A transaction in more detail. So, first of all, it's a deal. And like any deal, there are two sides to an M&A deal: the buyer and the seller.

Seller and Buyer

Who is the buyer and seller in M&A transactions? To answer this question, let's first look at how big business is legally organized in general, in our example, Russian big business.

The ultimate owners of all companies are people (individuals), whether they are small shareholders with a few shares or oligarchs with controlling or 100% stakes. They are often also referred to as ultimate beneficiaries or simply beneficiaries.

They usually own their property and assets through intermediate holding companies, which are most often registered in offshore jurisdictions such as Cyprus or the British Virgin Islands. Such companies are called holding companies, abbreviated as HoldCo, since their main function is to own shares of other companies, that is, to keep them on their balance sheet. The English word Hold means to keep.

Intermediate holding companies are the owners of shares in parent holding companies, which can be registered both offshore and in Russia. Such holding companies are the main economic entities of the business. It is there that management is concentrated, and it is these companies that we usually mean when we simply say Severstal or Evraz.

The parent companies of the holdings, in turn, own shares in the company, which already directly own the assets and conduct operations, and are often referred to as operating companies or OpCos.

Such a step-by-step ownership scheme is called a chain of ownership or a chain of ownership. It is needed primarily for organizing business management, for tax optimization and for maintaining the confidentiality of the final beneficiaries. In large transactions, buyers and sellers are legal entities, i.e. companies that own shares in the company being sold (in the case of a seller) or will become their owners as a result of the transaction (in the case of a buyer).

Read also: The concept and features of corporate disputes

That is, if shares of a holding company are sold, then the seller is an intermediate offshore company. If shares of an operating company are being sold, then HoldCo is the seller, and if assets are being sold, then OpCo is the seller. So, when we say a seller or a buyer in the context of an M&A transaction, we mean both the buyer or seller directly, i.e. the holding or operating company, and the ultimate beneficiary.

Legally, of course, the company acts as a buyer or seller, but all decisions are made by the beneficiary. He, in the end, receives economic benefits from the transaction, therefore, most often we mean the beneficiary when we talk about the seller or buyer in essence, and not in the legal sense.

There may be one seller and buyer, or there may be several. For example, in the deal for the purchase of TNK-BP by Rosneft, there were several sellers: the British company BP and the AAR consortium, which represented the interests of several beneficiaries at once, Mikhail Fridman's Alfa group, Leonard Blavatnik's Acctss group and Viktor Vekselberg's Renova. And when buying the Dutch bank ABN AMRO, a consortium of three banks was formed: the British RBS, the Dutch FORTIS and the Spanish Santander.

Subject of the transaction

You have gained insight into sellers and buyers. What is the subject of an M&A deal? As already mentioned, M&A refers to the purchase of a company or business. What does it mean to buy a company or a business? There are two options, buying shares or buying the assets of the target company.

Large transactions most often take the form of buying and selling shares. When buying shares, the buyer transfers ownership of them and the corresponding corporate rights, such as the right to participate in the management of the company through the right to vote and the right to participate in the distribution of profits, i.e. to receive dividends.

At the same time, both all shares, i.e. 100%, and a minority stake of less than 50% or a majority stake of more than 50% can be purchased. If 100% of the shares are acquired, then the buyer receives full control over the management and distribution of profits of the target company. When buying less than 100% of the shares, the seller also remains a shareholder along with the buyer.

Mergers and acquisitions of companies provide ample opportunities for business to reach a fundamentally new level. However, such operations are characterized by a significant degree of complexity and high risks. This requires relevant knowledge, and the ability to provide effective protection of the enterprise from hostile takeover is an integral part of business competence in modern conditions.

Friendly merger or hostile takeover?

Little Red Riding Hood is walking through the forest. Suddenly, the Gray Wolf jumps out to meet her, elegant, in a business suit. He looked at her curiously and said:

- In the current conditions, I see only two possible ways out of this situation.

- And what? - Little Red Riding Hood asks frightened.

“Either a friendly merger or a hostile takeover…

A long period of stagnation, as well as an unfavorable change in the economic situation, require a commercial enterprise to increase efficiency, which ultimately determines the survival of a business in the market. One of the strategic ways to achieve competitive advantage is through mergers and acquisitions of companies (Mergers and Acquisitions, M&A). Such transactions provide the enterprise with the opportunity to improve the economic performance of the business in leaps and bounds, effectively capitalize funds, and much more.

In particular, the conclusion of a merger or acquisition of a company in specific economic conditions is more profitable than the reinvestment of profits, since this gives the company a number of significant advantages. At the same time, the main motive is not just business expansion, but obtaining the so-called synergistic effect. It is understood as the result of the interaction of several factors, exceeding the cumulative result that could be obtained from these factors, acting separately.

In business, synergy refers to the advantage of the joint activities of several enterprises compared to their separate activities.

Copeland T., Kohler T., Murrin J. "Company Value: Valuation and Management"

The constituent elements of motivation when concluding M&A transactions, which are determined by obtaining a synergistic effect, include:

• operational motives aimed at improving the production process and sales of products, the current activities of the enterprise;
• financial reasons, implying additional financial mechanisms to improve efficiency and ensure the functioning of the company;
• investment motives due to an increase in investment opportunities and investment attractiveness of an economic entity;
• strategic motives designed to ensure a more stable position of the business in the market.

Motives for concluding mergers and acquisitions of companies

However, as practice shows, sometimes it is not possible to achieve a synergistic effect based on the results of M&A. Approximately 60–80% of such transactions do not achieve the expected synergy effect. Moreover, in at least half of the cases, mergers and acquisitions of companies do not justify the costs that were incurred during their implementation.

That is why, when considering such an alternative for business development, it is important to have a complete understanding of M&A transactions: their types and stages of implementation, typical advantages and disadvantages, potential risks, positive and negative experience of such transactions, as well as the features of their legal regulation in domestic and foreign legislation. .

Video: Konstantin Kontor on Mergers, Acquisitions and Corporate Governance

Main types of mergers and acquisitions of companies

There are various signs of classification of M&A transactions.

Classification of types of transactions for mergers and acquisitions of companies

M&A transactions are an effective tool for restructuring a company, establishing control over a company and its assets, protecting against competitors, expanding sales markets, reducing costs, but in their implementation there is the possibility of establishing a monopoly in the market. In Russia, as in other developed countries, a monopoly is prohibited, which is why, in order to limit the possibility of creating a monopoly using M&A transactions, there is a legal regulation of mergers and acquisitions.

Anna Gorokhova

http://web.snauka.ru/issues/2016/05/66935

Due to the fact that both domestic and foreign regulatory legal framework is largely built on the basis of the classification of M&A transactions by the nature of the integration of companies, its consideration is of the greatest practical interest. Based on this classification feature, the following types of mergers and acquisitions of companies are distinguished:

• horizontal, which are associations of entities that carry out economic activities in one industry, produce products of the same kind or provide similar services, which leads to an increase in a controlled market share, monopolization;
• vertical, consisting in the association of entities engaged in economic activities in various industries, but connected by a common market and / or production cycle, which opens up opportunities for creating vertically integrated corporations;
• generic, resulting from the merger of business entities that produce related goods (often complementary goods) or provide related services, which ensures greater stability in the market, including in the context of an economic crisis;
• conglomerate, consisting in the association of business entities from industries that are not related to each other in any way, which leads to the formation of multi-industry complexes, an increase in the level of business diversification.

Most Russian mergers are, in essence, takeovers by a large company of smaller firms.

It should be pointed out the fundamental differences in the understanding of the concepts of mergers and acquisitions in domestic and foreign law enforcement practice. According to the current legislation of the Russian Federation, a merger involves the creation of a new business entity by transferring the rights and obligations of two or more business entities to it with the termination of the economic activities of the latter. At the same time, in accordance with international practice, it is believed that the merger is the result of a decision by two or more business entities, most often of a comparable size, to carry out further activities in the form of a newly created united company. This can be more accurately described as a "fusion of equals".

In addition, the concept of absorption is completely absent in the domestic legal field. In part, it is replaced by the term accession, which is interpreted as the termination of the economic activity of one or more entities with the subsequent transfer of all rights and obligations to the economic entity to which they join. This is close to the foreign understanding of the term takeover, but the definitions are not completely interchangeable. In particular, according to international practice, a takeover also takes place if one of the companies establishes control over another, positioning itself as its new owner.

In the practice of implementing mergers and acquisitions of companies by participants and researchers, depending on the depth of elaboration of the solution, a different number of stages are distinguished.

The main stages of the implementation of mergers and acquisitions of companies

In general, you can use the following approach.

Definition of corporate strategy

The stage involves the evaluation and selection of the best way to implement the business strategy. The M&A plan should be formed on the basis of the strategic plan of the corporation, that is, an organic combination of the mergers and acquisitions plan with the company's goals is the main condition for success.

Selection of a qualified team

The working group for the transaction often includes auditors, investment financiers, HR and business consultants, specialized lawyers, PR managers and other specialists, and, importantly, insiders. The purpose of creating such a working group is a comprehensive analysis of the M&A process.

Determining the results of the transaction

Without identifying success criteria for a merger or acquisition transaction, business owners and management will not be able to assess whether the required results have been achieved in the end. Most often, indicators are set that characterize competitive advantages (new or aimed at strengthening existing ones). The rate of return on invested capital is used as the main of these parameters.

The main goal of M&A transactions is the growth of the main indicators of the company's activity: gross profit, profitability, rate of return on invested capital

Determination of eligibility criteria for the target company

To identify the required target company, the buyer first dictates the basic search parameters. At the same time, as a rule, preference is given not to the leading enterprise of a particular market segment, but not to an outsider either. This is due to the fact that a very significant price will have to be paid for a leading company, and it is unprofitable to pull a weak enterprise to the level of a satisfactorily functioning one. Therefore, the best option is classically the second or third enterprise in terms of efficiency in the market segment of interest.

Target company search

According to the established criteria, the search is carried out both by the buyer itself and through industry contacts or with the involvement of intermediaries, which is more widespread abroad. The decision to start negotiations in any case is made by the buyer company.

Negotiations with the target company

The mutual provision of information about intentions by the parties is implied, and even before the start of the dialogue, the formats for presenting information about both the target company and the acquiring company are stipulated. At this stage, it is also common to involve intermediaries.

Negotiations with representatives of the target company should be conducted by professionals: only then will they be successful

Target firm analysis

The implementation of a multilateral assessment of the acquired company, including operational, financial, environmental, legal audits, analysis of strategic aspects of the activity and its risks, identification of synergies, and so on, characterize this stage. Based on the results of such an analysis, the buyer decides whether to conclude a transaction or continue the search.

Implementation of the transaction

Legal registration of an M&A transaction is an important phase, which is preceded not only by an agreement on its terms with the target company, but also by obtaining the appropriate permission from the authorized state or local authority.

Firm integration

It consists in forming the structure of the united company, determining the personnel composition, decision-making procedures, as well as solidarizing corporate cultures, logistics and production processes, and other aspects of activity.

Evaluation of the results of the transaction

The assessment is carried out on the basis of previously selected target indicators and allows you to assess the success of the implementation of the corporate strategy or make the necessary adjustments.

The results of the M&A transaction must be discussed at a meeting with the participation of the company's shareholders and specialists who conducted the merger in order to soberly assess the results

Advantages, disadvantages and risks of mergers and acquisitions of companies

M&A transactions generally have typical advantages and disadvantages. And also they are characterized by a high level of risks with a very low probability of achieving a successful result, which determines this type of transactions as complex.

Benefits of M&A

The advantages of mergers and acquisitions are obvious:

• the possibility of obtaining a breakthrough result in the short term;
• capturing new industry and/or geographic market segments;
• instant gaining a certain market share;
• reducing competitive pressure;
• prompt and comprehensive acquisition of strategic assets, including intellectual ones;
• the probability of accepting undervalued assets on the balance sheet;
• purchase of a well-functioning infrastructure for the supply of raw materials and marketing of products.

A well-executed business merger provides tangible benefits to all companies involved in the transaction.

Disadvantages of M&A

The cons of the deals speak for themselves:

• significant financial costs, since in some cases there are payments of bonuses to shareholders, severance pay to staff and other types of compensation;
• it is possible that there will be difficulties with the employees of the acquired enterprise after the conclusion of the transaction;
• incompatibility of corporate cultures, which is especially important in the case of cross-border mergers;
• the complexity of the merger process when companies operate in various fields;
• significant risks, especially in case of errors in company valuation.

M&A risks

The dangers that lie in wait for a firm that has decided to merge are usually related to:

• with the legal cleanliness of the company being acquired and its legal activities from the moment of creation until the moment of sale (does the seller legally own the assets and are they properly registered, is the company established in compliance with all legal requirements, are the shares of the acquired company properly issued, are all necessary licenses for carrying out activities);
• with the implementation of corporate procedures in accordance with the constituent documents (whether the seller has all the necessary approvals);
• with the coordination of the transaction with the authorities (whether all agreements and permits are obtained, as well as the necessary notifications are sent to antimonopoly and other authorities);
• with additional restrictions or obligations regarding the acquired assets in accordance with local laws.

Many M&A deals have failed due to a misjudgment of the risks involved in merging multiple companies.

Methods of protection against hostile takeover attempts

The outcome of corporate conflicts is determined long before they begin, and depends on how each of the warring parties is informed and prepared for the conduct of hostilities. Moreover, the tasks of the opponents are completely opposite: for the aggressor - to seize control over someone else's business with minimal time and resources, for the defending side - to effectively repel the attack and keep the business for themselves.

Andrey Pushkin

http://www.germostroy.ru/art_953.php

The presence of one or more of the following main signs with a fairly high probability indicates that the company may be subject to a hostile takeover:

• intensive collection of various kinds of information about the company;
• the emergence of problems with state regulatory authorities, which is especially true for unscheduled inspections with the seizure of documents;
• unexpected or multiple lawsuits;
• atypical activity of minority shareholders;
• active acquisition on the market by third-party agents of the company's shares;
• examples of hostile takeovers of similar companies in an industry or region.

At the same time, corporate defense vulnerabilities include:

• existing significant violations of the law in the activities of the enterprise;
• the presence of unregistered property in accordance with the procedure established by the current legislation;
• strong dispersal of shares among minority shareholders;
• low level of business structure (no distribution of assets between legal entities);
• poor quality of constituent documents.

There are preventive and operational methods of protection against hostile takeover attempts, where the advantage should be given to the first. These include:

• monitoring the information environment surrounding the company;
• ensuring the security of inside information;
• legal audit;
• improvement of constituent and other internal regulatory documentation;
• restructuring;
• consolidation of a block of shares;
• ensuring legal protection of assets;
• effective management of accounts payable;
• elaboration of conflict situations with employees, management and partners of the company.

Operational methods of protection against attempts of hostile absorption are characterized by a sufficient variety.

Groups of operational methods of protection against hostile takeover attempts

They can be combined into the following groups:

• passive methods of protection, which consist in organizing the company's activities in such a way that its takeover is unprofitable for other market participants;
• judicial methods of protection, in which attempts of aggressive behavior on the part of other players are promptly suppressed by appropriate lawsuits;
• legal methods of protection, implying the improvement and increase in the efficiency of the applied legal schemes;
• publicity - to scare off aggressors, a corporate conflict is brought to the mass media or members of the public are involved.

Major M&A deals

The largest M&A transaction is the takeover of the German telecommunications company Mannesmann, which attempted to break into the UK market about two decades ago, after which the local company Vodafone Airtouch PLC was forced to acquire it. The amount of the transaction, closed in 2000, amounted to $183 billion. The value of the resulting corporation was estimated by experts at $342 billion, but in 2017, only 419th place was taken in the Forbes ranking of the largest public companies, Vodafone, and its capitalization amounted to slightly more than $67 billion.

The most failed M&A transaction, which amounted to $ 111 billion, is currently considered to be the merger of the largest media conglomerate Time Warner with the Internet giant AOL. It also took place in 2000. In the period immediately prior to its inception, Time Warner showed a profit of about $1.9 billion a year, and AOL - $1.2 billion a year. Due to the fact that the overheated dot-com bubble burst at the beginning of the new millennium, the company's assets rapidly lost value. In 2002, AOL Time Warner recorded a record loss in US history of $99 billion. This resulted in the separation of Time Warner and AOL at the end of 2009. Time Warner currently ranks 153rd in the Forbes ranking, with a capitalization of over $76 billion.

Table: TOP 10 largest M&A deals

As of the first half of 2017, the M&A market in the world is characterized by a decline.

Statistics of mergers and acquisitions of companies in the world in 2016

At the same time, the domestic market for mergers and acquisitions of companies fully offset the slowdown in growth observed in recent years, and showed a tangible positive trend. The first half of 2017 was marked by a number of major transactions related to the Russian Alfa Group.

The investment fund Pamplona Capital Management, which manages, among other things, the money of the shareholders of the Russian Alfa Group, bought the American provider of services for pharmaceutical, medical and biotech companies Parexel for $5 billion, including debt. This is the largest transaction in the first half of 2017 and the largest transaction in the service sector in the history of the Russian M&A market.

Bulletin "Market of Mergers and Acquisitions"

http://mergers.akm.ru/

Pamplona Capital Management is proud to successfully close the largest services deal in the Russian market

A small "but" in the end...

Until recently, in Russia, when structuring M&A transactions, in most cases, offshore schemes were used for mergers and acquisitions of companies and the creation of joint organizations.

Eurasian Law Journal

https://www.eurasialaw.ru/index.php?option=com_content&view=article&id=6084:2014–05–26–08–38–05&catid=151:2010–08–18–06–09–43

English law is deservedly considered the primary source of the mechanism for mergers and acquisitions of companies. Due to this, in the regulatory framework of foreign countries, the procedure for M&A transactions is more developed and verified. However, in recent years, the trend of frequent use of Russian law in the domestic market has shown itself. At the same time, there is an increase in the number of joint ventures established in accordance with the norms of the legislation of the Russian Federation.

To date, the following main regulatory legal acts governing mergers and acquisitions of companies are in force in the Russian Federation:

• Civil Code of the Russian Federation of November 30, 1994 No. 51-FZ (Articles 57, 58);
• Federal Law No. 135-FZ of July 26, 2006 “On Protection of Competition” (Chapter 7);
• Federal Law No. 208-FZ of December 26, 1995 “On Joint Stock Companies” (Chapter 2, Articles 16, 17);
• Federal Law No. 14-FZ of February 8, 1998 “On Limited Liability Companies” (Chapter 5, Articles 52, 53);
• Federal Law No. 312-FZ of December 30, 2008 “On Amendments to Part One of the Civil Code of the Russian Federation and Certain Legislative Acts of the Russian Federation”.

At the same time, due to the specific features of domestic legislation, the choice of foreign law when executing M&A transactions is not always possible. At the same time, when making such transactions, the parties, giving preference to foreign law, are guided by its advantages, that they are provided with a wide choice of legal protection mechanisms to ensure the interests of the parties. Among them are mechanisms that have proven their effectiveness, such as warranties (guarantees), indemnities (guarantees of indemnification), representations (assurances). Unfortunately, there are currently no direct analogues of these mechanisms in the current legislation of the Russian Federation. Hope should be expressed for the further development of the domestic regulatory framework governing economic relations in such an important area as mergers and acquisitions of companies.

The market for mergers and acquisitions of companies in connection with the stabilization of the economic situation in the Russian Federation is growing noticeably. Therefore, knowledge of such transactions, including the motives and consequences of their conclusion, types and stages of implementation, risks and methods of protection against hostile takeovers, as well as the peculiarities of domestic legislation, becomes a necessary business competence in modern conditions.