24. Leverage-buy-out of the company (lbo).

A leveraged buyout (LBO) is the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.

In an LBO, there is usually a ratio of 90% debt to 10% equity. Because of this high debt/equity ratio, the bonds usually are not investment grade and are referred to as junk bonds. Leveraged buyouts have had a notorious history, especially in the 1980s when several prominent buyouts led to the eventual bankruptcy of the acquired companies. This was mainly due to the fact that the leverage ratio was nearly 100% and the interest payments were so large that the company's operating cash flows were unable to meet the obligation.

28. Strategy and structure of mergers and acquisitions are both aspects of strategic management, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture.

The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A. When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." 

An acquisition is the purchase of one business or company by another company or other business entity. Consolidation occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies survives independently. Acquisitions are divided into "private" and "public" acquisitions, depending on whether the acquirer or merging company (also termed a target) is or is not listed o public stock market. An additional dimension or categorization consists of whether an acquisition is friendly or hostile.

KEY POINTS ●Acquisitions are often used to change a firm’s product focus rapidly. ●Acquisitions of direct competitors often represent significant revenue growth and cost-saving opportunities. ●The timely realization of synergies is critical to recovering purchase price  premiums.

The legal concept of a merger is about when two firms agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals". The firms are often of about the same size. Both companies' stocks are surrendered and new company stock is issued in its place.

History (не обязательно но если вдруг)

First Wave - mergers commenced from 1897 to 1904. During this phase merger occurred between companies, which enjoyed monopoly over their lines of production, and were mostly horizontal mergers that took place between heavy manufacturing industries. Majority of the mergers ended in failure since they could not achieve the desired efficiency.

Second Wave - mergers that took place from 1916 to 1929 focused on the mergers between oligopolies and were mainly horizontal or conglomerate in nature. The industries that went for merger during this phase were producers of primary metals, food products, petroleum products, transportation equipments and chemicals. The investments banks played a pivotal role in facilitating the mergers and acquisitions.

Third wave - mergers that took place during this period (1965-69) were mainly conglomerate mergers. Mergers were inspired by high stock prices, interest rates and strict enforcement of antitrust laws.

The 4th wave merger that started from 1981 and ended by 1989 was characterized by acquisition targets that wren much larger in size as compared to the 3rd wave mergers. Mergers took place between the oil and gas industries, pharmaceutical industries, banking and airline industries.

The 5th Wave Mergers (1992-2000) was inspired by globalization, stock market boom and deregulation. The 5th Wave Merger took place mainly in the banking and telecommunications industries.

29. Strategic alliances / Methods of corporations restructuring mergers and acquisition.

Corporate reorganization normally occurs following new acquisitions, buyouts, takeovers, other forms of new ownership or the threat or filing of bankruptcy. Reorganizations often occur when companies already have attempted new venture financing but failed to increase company value.

TYPES: Type A: Mergers and Consolidations; Type B: Acquisition --- Target Corporation Subsidiary; Type C: Acquisition --- Target Corporation Liquidation; Type D: Transfer; Type E: Recapitalization; Type F: Identity Change; Type G: Transfer.

Methods:

1. Forced method provides the use of force to overcome the resistance from staff. It is costly and undesirable process in social terms, but giving the benefits of a strategic response time. It is used in conditions of acute shortage of time and only in those cases where the nature of the resistance clear and frank display of force is not required.

2. The method of adaptive changes. In this approach, the strategic changes occur by gradual small changes over a long period. The process is regulated not by the higher authorities, but by a specially created project team. Conflicts are resolved through compromises, deals and movements in the manual. This method makes it is possible to make changes in the conditions, when supporters of the changes are no administrative power, but there is a strong motivation to innovate, it formed the appropriate way of thinking.

3. Crisis Management. The method can be used in situations where the administration is in a crisis situation, such as changes in the environment threaten its existence and it was in a cruel time trouble. When it's like an obvious crisis, the resistance usually gives way to support.

4. Control resistance ( "accordion" method). If forced and adaptive methods are extreme measures of changes, this method is an intermediate and can be implemented within the timeframe dictated by developments in the external environment. The duration of the process of change should take into account the time available. With increasing urgency, this method approaches to forced, with a decrease of urgency - to an adaptive method of implementing changes.

Inappropriate and untimely use of reorganization methods may cause disruption of strategic organizational innovations.