Mastering Mergers

By Jonathan Higuera
April 8, 2008 01:02 PM

The rash of corporate acquisitions in the news these days – from JPMorgan and Bear Stearns, to Microsoft and Yahoo – reminds us that business journalists must always be prepared for M&A coverage, even in a down economy.

Whether the deal involves the local pharmacy or a national operation headquartered in your town, chances are good you will cover a merger or acquisition at some point in your career. And when the time comes, there are several key points to keep in mind.

1. Decide if it is a merger or an acquisition. The companies involved will all too often try to push the deal as a merger because it sounds more benign than saying one company is swallowing up another. But we’re not in the business of sugarcoating. Figure out which side will have controlling interest and let your readers know. A true merger occurs when both companies go away and start something new as equal partners.


2. After getting the purchase price, find out how the acquiring company intends to pay. Will they use cash, stock, debt financing or a combination thereof? This could give you some clues about whether the deal is on solid financial footing or if it will take some creative financing to pull off. Obviously paying in cash could indicate a company is in a strong financial position, but many of today’s deals are financed with stock because it offers a tax advantage.


3. Pay close attention to the rationale for the deal. Companies will always talk about the synergies, efficiencies and market presence the combined company will create, but you must look beyond those stat answers. It could be the acquiring company is looking to penetrate a certain geographic area or is after technology developed by the target company. Perhaps the CEO has a big ego and wants the attention. Or maybe the company is feeling competitive pressure to buy something so they won’t be bought. Tap into the reasons behind the deal.  


4. Write from the perspective of your readers. If the target company is a decent-size employer in your community with its corporate headquarters located there and the acquiring company is not, your story, particularly your lede, should reflect that perspective. People want to know what it means as far as jobs, prestige and even charitable donations. Readers want to know where corporate headquarters will be and ultimately who will be making the decisions.


5. Mention the hurdles to the deal. If a governmental body such as the Federal Trade Commission has to approve the deal, try to determine if the review is perfunctory or if it will actually stir up legitimate concerns that could sink the deal. Analysts should be able to give you a sense of the regulatory concerns. In most instances, government is unlikely to step in unless there is a compelling reason to, such as serious anti-trust concerns, but it has in the past.


6. If the companies are public, make sure you are constantly tracking changes in stock price for both companies. Knowing how shareholders and investors are reacting may provide clues as to who holds the upper hand in negotiations and the chances for shareholder approval.


7. Compare the acquisition price with similar deals. This is not always practical because no two companies are valued equally but try to find a way to put the price into perspective. More than one deal’s promises have unraveled because a company paid too much.

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Copyright © 2008 Donald W. Reynolds National Center for Business Journalism