MGT 4066 Exam 1 Study Guide - MGT 4066 Motivations for...

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MGT 4066 Motivations for M&A -Strategic realignment: technological change, deregulation -Synergy: economies of scale/scope, cross-selling -Diversification (related/unrelated -Financial Considerations (acquirer believe target is undervalued, booming stock market, falling interest rates -Market power -Ego/Hubris -Tax Considerations: tax-free v. taxable, acquiring tax credits, international rate differentials Mergers v. Tender Offers -Merger -target board of directors and acquirer agree on a price -acquirer proposes a price/share to the target’s shareholders -shareholders have the choice to sell their shares at the offer price or keep them -usually friendly -Tender Offer -acquirer proposes a price/share to the target’s shareholders directly -shareholders have the choice to sell their shares at the offer price of keep them -often hostile as overstepping board Horizontal v. Vertical Mergers -Horizontal (1897-1904) -Mergers of competitors -Cause: drive for efficiency, lax enforcement of antitrust laws, westward migration, technological change -resulted in concentration of metals, transportation, and mining -Vertical -Mergers of companies at different levels in a value stream -backward integrate: acquiring a supplier (PepsiCo buys a bottler) -forward integrate: acquiring a distributor (Boise Cascade buys Office Max) Economies of Scale in M&A -the reduction in average total costs for a firm producing a single product for a given scale of plant due to the decline in average fixed costs as production volume increases -profit margin improvement is due to spreading fixed costs over more units of output -variable costs such as materials also could be reduced as more leverage w/ merged or larger firms and buying in more bulk Economies of Scope in M&A -reduction in average total costs for a firm producing 2 or more products b/c its cheaper to produce these in a single firm -cost savings in direct labor, telecommunications, leased space, and administrative expenses due to expanding the scope of a single center to support all 8 manu firms -accounting or sales supports multiple product lines of similar products
KEY STATUTES IN M&A Sherman Act -establishes criminal penalties for restraint of trade -contracts, combinations, conspiracies -fixed prices, rig bids, allocate customers among competitors, monopolize any part of interstate commerce -mergers creating monopolies are illegal -applies to firms already dominate in served markets Clayton Act

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