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Forms of Corporate Integration/Cooperation

At the core of all M&A (mergers and acquisitions) is the idea of corporate integration. Companies can make corporate integration happen in several ways that aren’t technically mergers or acquisitions.

Hostile takeover

A hostile takeover is really quite the same thing as a regular buyout or acquisition. The thing that makes such a takeover hostile is the fact that it occurs without the consent of the management of the acquired company.

A hostile takeover occurs in a few ways:

  • A proxy fight occurs wherein a majority of shareholders of the target company are convinced to vote out the current board of directors and replace them with a board that will agree to the takeover.

  • A company buys up a controlling share of equity on the secondary market.

  • A company purchases the debt of a troubled company and gains control over their assets through bankruptcy.

In any case, the end result of a hostile takeover is really quite the same as a normal acquisition or buyout, but it’s just done by force.

Factoring

Factoring is a much less integrated way to integrate. It’s a one-time deal (which can be repeated in the future, but each deal takes place only once rather than ongoing) that is relatively short term and keeps both organizations totally independent of each other. The way factoring works is that one company actually sells its accounts receivables to another at a discount.

So, the acquiring company is really only acquiring the future cash flows on the acquired company’s accounts receivables, meaning that it’s purchasing part of the company’s future revenues. Usually, the purchase price on such a deal will only be somewhere between 5 to 20 percent of the total value, depending on the quality of the accounts receivables, the receivables turnover in years, and other variables.

In this way, one company can acquire the operations of another but only specific operations and certainly within a limited timeframe rather than a permanent and total acquisition.

Joint ventures and partnerships

Sometimes corporations want to work together on a specific operation but don’t want to merge their other operations. These can come in several different forms, the exact details of which aren’t entirely relevant to this book. What does matter is that the exact nature of the contributions to these agreements, as well as the allocation of earnings, are established during the contract negotiations to form the agreement.

Joint ventures and partnerships tend to be far more popular than any other form of corporate integration, but they’re also less involved in finance, rather than corporate management.

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