Mergers and Acquisitions
Mergers and Acquisitions
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Summaries
Mergers: Bidder/Acquirer combines with the whole target
Acquisitions:
Bidder/Acquirer combines with part of the target
Forms of
integrations:
1) Statutory: Acquirer acquires all the
asset and liability and target cease to exist
2) Subsidiary: Target becomes a
subsidiary and keep the name
3) Consolidation: A new company forms
Types of
Mergers:
1) Horizontal: similar operations
2) Vertical (forward: buy downstream in
supply chain, backward: buy upstream in supply chain)
3) Conglomerate: from different
industry
Motivation
for M&A:
- Synergies: Cost and revenue
synergies
- Achieve rapid growth
- Increase market power
- Gaining access to unique
capabilities
- Diversification – but
conglomerate usually has negative synergy
- bootstrapping EPS – High P/E buying low P/E
- Personal Benefits for Managers
- Tax benefit – regulation
disallows M&A solely for this reason
- Unlocking hidden values
- Achieving international goals
Industrial
cycle:
Pioneer/
development phase: conglomerate (need external capitals) and horizontal
Rapid
growth phase: conglomerate and horizontal
Mature
growth phase: horizontal and vertical (increase operational efficiency)
Stabilization
phase: horizontal
Declining:
all 3 types
Form of
Acquisitions:
Stock
purchase – directly with share holders, can use company tax loss benefit,
need share holders approval, share holders pay tax
Asset
purchase – deal with company, corporate level tax, usually part of the
company
Payments:
Shares or Cash (By using cash, risks are borne by
acquirers only. If acquirer’s share is overvalued, share payment is
preferred. Also target capital structure has to be considered)
Definitive
merger agreement: signed before announced to the public
Hostile
Merger:
1) Bear hug: proposal directly to the
board of director
2) Tender offer: buy share directly
from shareholders
3) Proxy battle: having shareholders
approval a new board of directors