It seems as though every day one hears about a company announcing plans to merge or acquire another company. Mergers and acquisitions are part and parcel of corporate strategy and are necessary to expand a company’s portfolio, acquire a new technology or resources, or break into new markets. By acquiring another company—whether a direct competitor or a company in a new industry—the business power of the corporation increases while positioning it as a leader in their field.
MARRIAGE OF PHARMA GIANTS
The acquisition of Wyeth
by Pfizer, Inc
. in 2009 found arguably the largest pharmaceutical company in the world buying its chief rival to become the world industry leader in research and biopharmaceuticals. Considered one of the largest acquisitions in the US, Pfizer purchased Wyeth for $68 billion in cash and stocks and made Wyeth a subsidiary of the pharmaceutical giant.
Though the merger angered some critics, Pfizer is determined to prove the naysayers wrong. Positioned as an industry leader, Pfizer is able to reach a broader market, including emerging markets around the globe.
Through this merger, Pfizer is able to improve their overall global footprint in pharmaceutical research and consumer sales of prescription medications, animal health products, and enter the lucrative market of over-the-counter medications. Wyeth’s successful consumer healthcare product brands include Advil®, Dimetapp®, and Robitussin®. Wyeth is also a leader in the nutrition market with their milk products available in 60 countries. This gives Pfizer the opportunity to enter this highly successful market and reach more people around the globe.
With increased access to the latest innovations in pharmaceutical research, Pfizer is able to research and develop a wider-range of effective medicines, vaccines, and biotherapeutics that reach consumers at every stage of their lives all over the world.
BIG OIL & NATURAL GAS
Oil and gas giant Exxon Mobil
acquired natural gas leader XTO Energy in 2009 for $41 billion in stock. Both are Texas-based companies, headquartered out of the Dallas-Fort Worth metroplex. This business transaction came at the heels of the purchase of Hunt Petroleum Corporation by XTO Energy in 2008.
XTO Energy is an established leader in natural gas production from unconventional resources such as shale gas and oil and coal bed methane. Experts predict that natural gas will be a key energy source well into the next few decades and is set to increase globally by 50 percent.
The acquisition of XTO Energy helps Exxon Mobil diversify their energy portfolio and gives them an opportunity to become a leader in the natural gas sector. Exxon Mobil is able to reach out to more consumers, particularly those in emerging markets, providing a necessary energy resource essential to the lives of many.
By breaking into in the natural gas market, Exxon Mobil can position itself to become a comprehensive energy leader. Though Exxon Mobil has shown interest in developing its own natural gas technology, the purchase of an existing successful natural gas purveyor allows for a more efficient transfer of technology. By increasing their efficiency, Exxon Mobile can add to their bottom line.
THE GREAT CHOCOLATE WAR
Considered one of the more controversial acquisitions in recent history, Kraft Foods
successfully purchase the majority of shares in Cadbury
after a lengthy, often hostile, bidding process for $19 billion. The agreement was finalized earlier this year with Kraft Foods, the second-largest food, beverage and confection corporation in the world, holding 71 percent of shares in Cadbury.
Cadbury, the UK-based company responsible for delicious confections, including Dairy Milk and everyone’s favorite Easter treat, Cadbury Crème Eggs®, rejected an initial offer by Kraft Foods, arguing that Kraft undervalued Cadbury. After intense negotiations and a bidding challenge by the Hershey Company, Cadbury finally reached an agreement with US-based Kraft.
The purchase is seen as a horizontal expansion of two leading food brands. Cadbury will benefit from the diverse brand and product portfolio of Kraft Foods. Kraft is able to expand into emerging markets such as India, where Cadbury has a strong presence. India has proven to be a tough market to break into as they are not as quick to embrace Western products, particularly food and confectionary products. However, many of Cadbury’s products — Dairy Milk and Bournvita malted drinks — are successful throughout India. In fact, the company has over 70% of the chocolate market. Through this acquisition, Kraft can continue to expand on the groundwork of Cadbury and become a powerhouse in India.
In many cases, mergers and acquisitions are beneficial for all companies involved, as each company gains from the associations with the other’s brand and product portfolio. As a result, the companies strengthen and increase their markets to become a profitable business venture.