10 tips about covering mergers and acquisitions
By MARAIA B. VULA
Global Business Journalism reporter
Mergers and acquisitions are one of the staples of business news coverage. But too many "M&A" stories get bogged down in jargon and corporate-speak. How can you write a clear, concise story on the latest corporate merger or acquisition?
1. Understand the terms “merger” and “acquisition”
There is a difference in the ways companies combine. You must know these basics: When is it a merger? When Is it an acquisition? A merger is when two companies combine. The terms of corporate management are negotiated between the merged companies. An acquisition is when one company takes control of another. The company that is acquired no longer operates as an independent corporate entity. The motives behind mergers and acquisitions vary: They may be concluded to expand one company’s reach, to create a more powerful (combined) entity in an industry, or to increase market share in an attempt to create shareholder value.
2. Understand the differences between types of mergers
Horizontal Merger: This is a merging of two companies that are in direct competition and share the same lines of products and markets. Think Pepsi & Coca-Cola or Universal Studios and Disney.
Vertical Merger: This occurs when a company joins forces with other businesses in its chain of production. Examples: An ice cream producer buys a cone maker. Or a movie studio combines with a streaming video service and a chain of movie theaters. This kind of vertical integration can create legal hurdles with anti-trust regulators if the transaction is deemed anti-competitive.
Conglomeration: A conglomerate is formed when two companies in different areas of business combine. The goal can be diversification of corporate products or strengthening a core corporate interest. Historical examples: The entertainment giant Walt Disney Company bought the ABC broadcast network (which had news, television entertainment programing and sports). The tobacco giant Philip Morris bought Kraft Foods.
3. Explain the basic facts of the deal
The companies involved in a deal will announce their transaction, often in opaque business jargon. Find out which is the seller and which is the buyer. Which company is stronger? Or is it a merger of equals? Which company is gaining effective control of the merged entity? When did the deal happen? Is the deal final? When will the deal close? Are there any “escape clauses” that allow the purchaser to back out. Or are there penalties if either of the parties does not go through with the merger or acquisition?
4. Find out the reason for the deals
Why are the companies merging? Why is company A acquiring company B? Some of the reasons to examine:
Eliminating the competition by buying it.
Dominating an industry.
Two struggling companies think they have a better chance of surviving by combining into one.
5. What’s the price?
Find out the total price and per-share price of a deal. Who are the winners (or losers)?
6. How is the deal being funded?
Cash, stock, debt? Is one of the two companies’ stock being used as currency? If the answer is yes, that’s usually a good sign that the company whose stock is being used is the acquirer, and it is not a merger.
7. What regulatory approvals are needed?
When will the deal be completed, and who must approve the transaction?
8. Explain the governance of the new company
Which company’s board will have the most seats on the re-structured company’s board? Who will be the CEO of the company after the deal closes? Interview the right people to get answers that may go beyond the official press releases.
9. Use simple language.
You are not writing just for investors! Workers, competitors and consumers matter too. Write in an accessible style. Translate technical and financial language for your audience. Check, then re-check, the facts and numbers.
10. Employ your analytical skills
It is essential for you to analyze provided material and develop more nuanced stories. Some analytical points important to any merger or acquisition story: Why did it happen? How did it happen? What comes next? How will the surviving corporation be different? How will the industry be different?