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?
What is a primary rationale behind horizontal mergers?
What is a primary rationale behind horizontal mergers?
Which argument is typically raised against M&A activity?
Which argument is typically raised against M&A activity?
What characterizes a tender offer in the context of mergers and acquisitions?
What characterizes a tender offer in the context of mergers and acquisitions?
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Which condition is likely to favor the occurrence of mergers and acquisitions?
Which condition is likely to favor the occurrence of mergers and acquisitions?
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What distinguishes vertical mergers from conglomerate mergers?
What distinguishes vertical mergers from conglomerate mergers?
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In what scenario would a short-form merger be utilized?
In what scenario would a short-form merger be utilized?
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What are risk arbitragers primarily concerned with in M&A activities?
What are risk arbitragers primarily concerned with in M&A activities?
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Which type of merger seeks to reduce portfolio risk through diversification?
Which type of merger seeks to reduce portfolio risk through diversification?
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Which of the following statements about tender offers is correct?
Which of the following statements about tender offers is correct?
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What is a common outcome for minority shareholders in a merger scenario?
What is a common outcome for minority shareholders in a merger scenario?
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What is the primary goal of concentric diversification?
What is the primary goal of concentric diversification?
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How do arbitrage funds typically manage their risks in M&A activities?
How do arbitrage funds typically manage their risks in M&A activities?
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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
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In Favor:
- Critical to healthy expansion of businesses
- Increase value and efficiency
- Move resources to optimal uses
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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
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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
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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.
