Bite-size Case Study

M&A: success and failure

Published on May 30, 2021 Originally recorded 2021   4 min
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'Mergers and acquisitions' is a term that's used to describe the process through which one company acquires another company. In particular, we're usually talking about publicly traded companies, in these circumstances. We don't have to be, but that's typically what's going on. The company that is looking to acquire another company, that is, the company that is buying another firm, is called the suitor firm. While the company that is being acquired or being bought is called the target company.
Now typically, suitor firms look for target companies that are a good fit with the suitor's existing business and provide good value for suitor shareholders. Suitor firms generally offer to buy out or takeover target firms at a premium to the target firm's stock price prior to the news of that suitor's interests.
Now there are lots of different examples of mergers. Sometimes these mergers are successful, sometimes they're not. For instance, Bass Pro Shops, which as the name implies, sold fishing equipment, decided they wanted to merge with Cabela's, which sold hunting equipment. Hunting and fishing come together. There are obvious kinds of synergies here. Both of them are retail locations, so we've got distribution hub opportunities there, number one, but number two, the product lines are broadly comparable. Somebody looking to go hunting might also be looking to go fishing and vice versa. Bass Pro Shops and Cabela's ultimately had a successful merger. In the beginning, shareholders were very unsure if this deal would go through. There was a lot of concern that maybe there would be too much of a monopoly in hunting and fishing. But ultimately, what regulators decided is that look, even though Bass Pro Shops and Cabela's are big names in hunting and fishing, the reality is there are lots of other stores, everybody from Amazon to Walmart, that also sell fishing rods and tents and things like that. Another example of a merger and one which happened to be unsuccessful in this case is Qualcomm and NXPI. Basically, Qualcomm designs chips for things like computers and phones. In particular, Qualcomm's specialty is really around wireless phone chips, and NXPI develops chips for autonomous driving, for self-driving cars. Qualcomm wanted to buy NXPI because they saw this as a growing industry and one in which they could use their existing expertise to capitalize on. Well, ultimately, most regulators around the world ended up approving this deal. But the deal ended up getting stuck in China because of a variety of factors. Not the least of which was trade tensions between the US, where Qualcomm is based and China where both Qualcomm and NXPI do a lot of business. There was a lot of concern on China's part about the trade war with the US and whether China wanted to allow US companies to get bigger and stronger and so the Chinese appeared to sit on this deal and ultimately, Chinese regulators never approved the deal. Eventually, Qualcomm simply had to give up after about two years of waiting for approval. These kinds of deals can be very difficult to complete. In some cases, companies always have to be very confident that they're making a smart purchase, not only for the long-term with the company, of course, given the risks, but also given the risk that regulators might not approve the deal, and so, the company could have gone to a whole bunch of time, effort, and expense all for nothing. In the case of Bass Pro Shops and Cabela's, it worked out, and that expense and effort is worthwhile. In the case of Qualcomm and NXPI, it did not. Qualcomm, my guess is would say: "you know what, in retrospect, we wish we had never bothered with the NXPI attempted merger".