Consolidation strategies occur within individual companies as well as throughout industries. A company could decide to combine its operations as a result of a corporate restructuring. Or two companies operating in the same industry might agree it makes sense to merge operations. Not every consolidation strategy is friendly, however. Sometimes it's a function of a bigger company or activist investor waiting for an opportune time to pounce.
Mergers and Acquisitions
A consolidation strategy for M&A emerges from a company's need to expand. It's the alternative to growing organically, or within a corporation, and can occur as a result of numerous scenarios. An M&A strategy should involve synergies, or ways for the combined companies to be more efficient than they were alone. These synergies can involve costs, management expertise or may be operational in nature, according to a 2012 article in the Financial Times.
It's not uncommon for a company to streamline its operations during a corporate restructuring. This could be to boost the performance of a business segment that's lagging or to make things less confusing. In 2014, Procter & Gamble was planning to combine or sell more than 50 percent of its brand portfolio amid lagging sales.
Hostile takeovers can be traced back to the 19th century, when railroad tycoon Jay Gould knocked out the competition by acquiring it. While Gould's legacy is mired in controversy, the strategy was still around as of publication. A hostile takeover requires a competitor or investors to acquire at least a 5 percent stake in the target company followed by the issuance of either a tender offer in the case of a competitor or a proxy fight by investors.
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