Ch01-The Takeover Process-Class PPT PDF

Chapter 1 The Takeover Process Change Forces Driving Mergers 1. Technological change 2. Efficiency of operations 3. Globalization and freer trade 4. Changes in industry organization 5. New industries 6. Deregulation and regulation 7. Favorable economic...

Chapter 1 The Takeover Process Change Forces Driving Mergers 1. Technological change 2. Efficiency of operations 3. Globalization and freer trade 4. Changes in industry organization 5. New industries 6. Deregulation and regulation 7. Favorable economic and financial conditions 8. Negative trends in industries and economies 9. Widening inequalities in income and wealth 10. High valuation of equities (2007) Chapter 1-4 Issues Regarding M&A Activity In Favor Opposed Critical to healthy No improvements expansion of business subsequent to the firms acquisition Increase value and Redistribution of efficiency wealth from labor Move resources to and other optimal uses stakeholders to shareholders Speculative activity Chapter 1-5 1  M&A Terminology Merger Negotiated deals Mutuality of negotiations Mostly friendly Tender offers Offer made directly to the shareholders Hostile when offer made without approval of the board Restructuring changes to improve operations, policies, and strategies Chapter 1-6 Types of Mergers Horizontal mergers Between firms in same business activity Rationale – Economies of scale and scope – Synergies (ex. combining of best practices) Government regulation due to potential anticompetitive effects Vertical mergers Combinations between firms at different stages Goal is information and transaction efficiency Chapter 1-7 Types of Mergers Conglomerate mergers Firms in unrelated business activities Distinctions between conglomerate and nonconglomerate firms Investment companies diversify to reduce portfolio risk Financial diversified provide funds and expertise on generic management functions of planning and control Concentric diversified combine with firms in less related activities to broaden potential markets Chapter 1-8 2 Mergers in a Legal Framework Statutory merger — formal legal procedures Short-form merger — streamlined legal procedures when ownership is 90% Holding company — parent company has a controlling interest Chapter 1-9 Tender Offers Bidder seeks target's shareholders approval Minority shareholders Terms may be "crammed down" May be subject to "freeze-in" Minority may bring legal actions Many minority squeeze-outs –Usually reversing equity carve-out –Parents often make high bid to avoid shareholder lawsuits. Chapter 1-10 Tender Offers Kinds of tender offers and provisions Conditional vs. unconditional Restricted vs. unrestricted "Any-or-all" tender offer Contested offers Two-tier offers Three-piece suitor Chapter 1-11 3 Risk Arbitrage in M&A Activity In M&A, risk arbitragers take a position in a merger for short-term profitable resale Arbitragers bet that a deal will be completed: bear “deal risk” & try to minimize market risk Provide liquidity for target shareholders seeking to sell to realize gains from premium Arbitrage funds Spread deal risk over portfolio of deals Performance of these funds is often high But, funds are highly exposed to market crashes Chapter 1-12 4