AEM324 - mergers and acquisitions_Notes

AEM324 - mergers and acquisitions_Notes - Chapter 25...

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Chapter 25 Mergers and acquisitions General problems that come up in the area of finance regarding mergers and acquisitions o Benefits of acquisitions depend on such things as strategic fits Difficult to precisely define o There can be complex accounting, tax, and legal effects that must be taken into account when one firm is acquired by another o Acquisitions are an important control device for shareholders A way for shareholders to remove existing managers o Mergers and acquisitions sometimes involve unfriendly transactions Defense tactics come into play Basic terms o Bidder is the acquiring firm o Target firm is the firm that is sought and perhaps acquired o Consideration is the cash or securities offered to the target firm Merger or consolidation o A merger is the complete absorption of one firm by another; the acquiring firm retains its identity and it acquires the assets and liabilities of the acquired firm Post-acquisition the acquired firm ceases to exist as a separate business entity o A consolidation is the same as a merger except that an entirely new firm is created Both firms involved terminate their previous legal existence and become part of a new firm o The term merger will be used to refer generically to both mergers and consolidations Primary advantage is that a merger is legally simple and does not cost as much as other forms of acquisition Firms agree to combine entire operations; no need to transfer titles, etc. Primary disadvantage is that a merger must be approved by a vote of the stockholders of each firm (typically two-thirds at least Obtaining the necessary votes can be time-consuming and difficult The cooperation of the target firm’s existing management is almost a necessity for a successful merger o May not come easily or cheaply Acquisition of stock o Simply a purchase of the firm’s voting stock with an exchange of cash, shares of stock, or other securities Usually started as a private offer from the management of one firm to another o Tender offer : a public offer to buy shares; regardless of how it starts, at some point the offer is taken directly to the target firm’s stockholders
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Made by one firm directly to the shareholders of another firm (by public announcement; occasionally general mailing) Those shareholders who choose to accept the offer tender their shares by exchanging them for cash or securities (or both) Such an offer is frequently contingent on the bidder’s obtaining some percentage of the total voting shares If not a larger enough percentage are tendered, the offer might be withdrawn or reformulated o In an acquisition by stock, no shareholder meetings have to be held and no vote is required If the shareholders of the target firm don’t like the offer, they are not required to accept it and need not tender their shares The bidding firm can deal directly with the shareholders of the target firm by using the tender offer
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AEM324 - mergers and acquisitions_Notes - Chapter 25...

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