CORPORATE FINANCIAL MANAGEMENT LECTURE 11 MERGERS AND ACQUISITIONS

What are the 3 forms of acquisition justification - ANS-Economic, Financial, Legal What are against acquisitions - ANS-Financial(other) Costs of financing acquisitions - ANS-share for share, cash Defensive tactics (pre bid defense, post bid defense) divestments/restructure (sell off, spin off) How is a merger valued - ANS-stock market, asses based, income based) What is a merger - ANS-Corporate strategy to combine with another company and operate as a single entity (usually similar size/scale of operations ) What is an acquisition? - ANS-corporate transaction where one company purchases a portion or all of another companies shares or assets What are the 3 forms of acquisition/define them - ANS-Horizontal - both firms in the same industry Vertical- Different stages in production cycle(up or down supply chain) Conglomerate- Firms are unrelated What are the 3 legal procedures to acquire - ANS-1)Merge = A+B=c 2)Acquisition of shares (A offers shares to B) 3)Acquisition of assets (A buys out B) Justifications for Acquisition - ANS-if the market value of the new firm is bigger than the market value of the 2 firms separately Economic Justifications - ANS-Operational Synergy, Managerial Synergy, Economies of scale, Entry to new markets Financial Justifications (financial benefits to share holders) - ANS--Increasing EPS EPSa+b EPSa+EPSb -Target undervaluation -Financial synergy- gives a positive net gain Against Acquisitions (Financial side effects) - ANS-1)EPS growth - may increase EPS but still have 0 synergy 2)Diversification- Stockholders can diversify their portfolios cheaper -Acquisition may be blocked -Formal investigations Continues...