Podcast
Questions and Answers
Which of the following is NOT a change force driving mergers?
Which of the following is NOT a change force driving mergers?
- Negative trends in industries and economies
- New industries
- Technological change
- Government ownership regulations (correct)
What is a primary rationale behind horizontal mergers?
What is a primary rationale behind horizontal mergers?
- Acquisition of new technologies
- Diversification of products
- Increased market competition
- Economies of scale and scope (correct)
Which argument is typically raised against M&A activity?
Which argument is typically raised against M&A activity?
- Redistribution of wealth from labor to shareholders (correct)
- Increase value and efficiency
- Critical for healthy expansion of business firms
- Optimum use of resources
What characterizes a tender offer in the context of mergers and acquisitions?
What characterizes a tender offer in the context of mergers and acquisitions?
Which condition is likely to favor the occurrence of mergers and acquisitions?
Which condition is likely to favor the occurrence of mergers and acquisitions?
What distinguishes vertical mergers from conglomerate mergers?
What distinguishes vertical mergers from conglomerate mergers?
In what scenario would a short-form merger be utilized?
In what scenario would a short-form merger be utilized?
What are risk arbitragers primarily concerned with in M&A activities?
What are risk arbitragers primarily concerned with in M&A activities?
Which type of merger seeks to reduce portfolio risk through diversification?
Which type of merger seeks to reduce portfolio risk through diversification?
Which of the following statements about tender offers is correct?
Which of the following statements about tender offers is correct?
What is a common outcome for minority shareholders in a merger scenario?
What is a common outcome for minority shareholders in a merger scenario?
What is the primary goal of concentric diversification?
What is the primary goal of concentric diversification?
How do arbitrage funds typically manage their risks in M&A activities?
How do arbitrage funds typically manage their risks in M&A activities?
Flashcards
Merger
Merger
A negotiated deal between companies with a mutual agreement. Typically a friendly transaction.
Tender Offer
Tender Offer
A direct offer to shareholders, often without board approval. Can be hostile.
Horizontal Merger
Horizontal Merger
Merger between companies in the same industry.
Restructuring
Restructuring
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M&A Reasons (Favorable)
M&A Reasons (Favorable)
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Vertical Mergers
Vertical Mergers
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Conglomerate Mergers
Conglomerate Mergers
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Statutory Merger
Statutory Merger
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Tender Offer
Tender Offer
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Risk Arbitrage (M&A)
Risk Arbitrage (M&A)
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Short-form Merger
Short-form Merger
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Holding Company
Holding Company
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Minority Shareholders
Minority Shareholders
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Study Notes
Change Forces Driving Mergers
- Technological change
- Efficiency of operations
- Globalization and freer trade
- Changes in industry organization
- New industries
- Deregulation and regulation
- Favorable economic and financial conditions
- Negative trends in industries and economies
- Widening inequalities in income and wealth
- High valuation of equities (2007)
Issues Regarding M&A Activity
- In Favor:
- Critical to healthy expansion of businesses
- Increase value and efficiency
- Move resources to optimal uses
- Opposed:
- No improvements subsequent to acquisition
- Redistribution of wealth from labour and other stakeholders to shareholders
- Speculative activity
M&A Terminology
- Merger: Negotiated deals, mutuality of negotiations, mostly friendly
- Tender offers: Offer directly to shareholders, hostile when without board approval
- Restructuring: Changes to improve operations, policies, and strategies
Types of Mergers
- Horizontal mergers: Between firms in the same business activity
- Economies of scale and scope
- Synergies (combining best practices)
- Government regulation due to potential anticompetitive effects
- Vertical mergers: Combinations between firms at different stages
- Goal is information and transaction efficiency
- Conglomerate mergers: Firms in unrelated business activities
Mergers in a Legal Framework
- Statutory merger: Formal legal procedures
- Short-form merger: Streamlined legal procedures when ownership is 90%
- Holding company: Controlling interest parent company
Tender Offers
- Bidder seeks target's shareholders' approval
- Minority shareholders: Terms can be "crammed down", may be subject to "freeze-in", minority may bring legal actions, many minority squeeze-outs (often reversing equity carve-out, parents often bid high to avoid lawsuits)
Tender Offers (cont'd)
- Kinds of tender offers: Conditional vs. unconditional, restricted vs. unrestricted, "any-or-all" tender offer, contested offers, two-tier offers, three-piece suitor
Risk Arbitrage in M&A Activity
- In M&A, risk arbitragers take a position for short-term resale.
- Arbitragers bet on a deal being completed (deal risk), but try to minimize market risk.
- Provide liquidity for target shareholders.
- Arbitrage funds spread deal risk & are often highly exposed to market crashes.
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Description
This quiz explores the driving forces behind mergers and acquisitions, including technological change, globalization, and the economic landscape. It also addresses the controversies surrounding M&A activities and key terminology used in the field. Test your understanding of these crucial business practices.
