FEM11118: ADVANCED CORPORATE
FINANCE AND GOVERNANCE
LECTURE 4
MERGERS & ACQUISITIONS
,TODAY
Mergers & acquisitions
Motivations behind acquisitions
Merger waves Why mergers cluster
Empirical evidence on takeovers (does it pay to do an
M&A?)
Merger arbitrage How could you make a profit based on merger anouncements?
Practice problems on convertible securities
2
,REQUIRED READING
Andrade, G., M. Mitchell, and E. Stafford
(2001). New evidence and perspectives on
mergers. Journal of Economic Perspectives
15, 103-120. Worthwhile to see if things changed, evolving view
3
,MERGERS AND ACQUISITIONS
The past lectures have provided insights into how firms
finance themselves
The follow up question is: what do they do with the money
An important reason why firms need financing is to
participate in mergers and acquisitions.
How are M&As financed?
Cash Mostly done with cash and stock
Stock
Debt? Eg. LBO’s
What affects using cash/stock (depends on the height of stock price)
Relates to capital structure theory (high stock price want to pay with shares instead of cash)
Market timing or adverse selection (stock price high, more likely to pay with equity)
4
FINANCE AND GOVERNANCE
LECTURE 4
MERGERS & ACQUISITIONS
,TODAY
Mergers & acquisitions
Motivations behind acquisitions
Merger waves Why mergers cluster
Empirical evidence on takeovers (does it pay to do an
M&A?)
Merger arbitrage How could you make a profit based on merger anouncements?
Practice problems on convertible securities
2
,REQUIRED READING
Andrade, G., M. Mitchell, and E. Stafford
(2001). New evidence and perspectives on
mergers. Journal of Economic Perspectives
15, 103-120. Worthwhile to see if things changed, evolving view
3
,MERGERS AND ACQUISITIONS
The past lectures have provided insights into how firms
finance themselves
The follow up question is: what do they do with the money
An important reason why firms need financing is to
participate in mergers and acquisitions.
How are M&As financed?
Cash Mostly done with cash and stock
Stock
Debt? Eg. LBO’s
What affects using cash/stock (depends on the height of stock price)
Relates to capital structure theory (high stock price want to pay with shares instead of cash)
Market timing or adverse selection (stock price high, more likely to pay with equity)
4
