Mergers and Acquisitions Seminar 2 - Mergers and...

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Fundamentals of Financial Management
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Chapter 3 / Exercise 04
Fundamentals of Financial Management
Brigham
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1 Mergers and Acquisitions Seminar 2 Material covered in this seminar: Lectures 1-3 The Mergers and Acquisitions Environment, The Acquisition Process Suggested reading: DePamphilis (2015) Chapters 1 to 6. Question 1 We will discuss about payments of takeovers. A key paper on this topic is: Faccio, M and Mazulis, R.W.(2005). The choice of payment method in European Mergers and Acquisitions, Journal of Finance 60 , pp.1345-1388 Required: The paper has been uploaded via DUO. Based on this article, please critically evaluate and discuss on 2-3 (max.) paragraphs what influences bidders and sellers (target shareholders). Question 2 Please provide brief answers to the following questions: i) Why do boards of directors of both acquiring and target companies often obtain so-- called “fairness opinions” from outside investment advisors or accounting firms? What valuation methodologies might be employed in constructing these opinions? Should stockholders have confidence in such opinions? Why/why not? ii) Outline and describe pre-offer takeover defenses. iii) Outline the typical acquisition plan for the acquiring firm. iv) Why is it important to anticipate merger waves? v) Describe “The Bear Hug Offer” alternative takeover tactics. Outline any advantages and disadvantages. vi) Describe the: Greenmail, White Knights and Employee stock ownership plans, takeover post-offer defenses. vii) What is the purpose of the buyer and seller performing due diligence? Why is the integration phase of the acquisition process considered so important? viii) Why should acquired companies be integrated quickly? What are the risks to rapid integration?
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Fundamentals of Financial Management
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Chapter 3 / Exercise 04
Fundamentals of Financial Management
Brigham
Expert Verified
2 ix) Why is candid and continuous communication so important during the integration phase? x) Identify at least three criteria that might be used to select a manufacturing firm as a potential acquisition candidate. A financial services firm? A high technology firm? xi) What are the advantages and disadvantages of using an acquisition to implement a business strategy as compared to a joint venture? Question 3 Read the following case study (continued from Seminar 1): Mittal Acquires Arcelor A Battle of Global Titans in the European Corporate Takeover Market Ending five months of manoeuvring, Arcelor agreed on June 26, 2006, to be acquired by larger rival Mittal Steel Co. for $33.8 billion in cash and stock. The takeover battle was one of the most acrimonious in recent European Union history. Hostile takeovers are now increasingly common in Europe. The battle is widely viewed as a test case as to how far a firm can go in attempting to prevent an unwanted takeover Arcelor was created in 2001 by “melding” steel companies in Spain, France, and Luxembourg. Most of its 90 plants are in Europe. In contrast, most of Mittal's plants are outside of Europe in areas with lower labour costs. Lakshmi Mittal, Mittal's CEO and a member of an important industrial family in India, started the firm and built it into a powerhouse through two decades of acquisitions in emerging nations. The company is headquartered in the Netherlands for tax reasons. Prior to the Arcelor acquisition, Mr Mittal owned 88% of the firm's stock. Mittal acquired Arcelor to accelerate steel industry consolidation to reduce industry overcapacity. The combined firms could have more leverage in setting prices and negotiating contracts with major customers such as auto and appliance manufacturers and suppliers such as iron ore and coal vendors, and eventually realize $1 billion annually in pre-tax cost savings.

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