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Chapter 29.ppt - CHAPTER 29 Mergers Acquisitions and...

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Mergers, Acquisitions and Divestitures CORPORATE FINANCE 1 (Prof. GOHAR G. STEPANYAN) CHAPTER 29 CHAPTER 29
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Chapter Outline Chapter Outline 29.1 The Basic Forms of Acquisitions 29.2 Synergy 29.3 Two Financial Side Effects of Acquisitions 29.4 A Cost to Stockholders from Reduction in Risk 29.5 The NPV of a Merger 29.6 Friendly versus Hostile Takeovers 29.7 Defensive Tactics 29.8 Do Mergers Add Value? 29.9 The Tax Forms of Acquisitions 29.10 Accounting for Acquisitions 29.11 Going Private and Leveraged Buyouts 29.12 Divestitures 29.13 Summary and Conclusions 2
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There are three basic legal procedures that one firm can use to acquire another firm: Merger or consolidation Acquisition of stock Acquisition of assets Although these forms are different from a legal standpoint, the financial press frequently does not distinguish among them. In our discussions, we use refer to acquisitions and mergers synonymously regardless of the actual form of the acquisition. 29.1 The Basic Forms of 29.1 The Basic Forms of Acquisitions Acquisitions 3
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A merger refers to the absorption of one firm by another. The acquiring firm retains its name and identity, and acquires all the assets and liabilities of the acquired firm. After the merger, the acquired firm ceases to exist as a separate entity. A consolidation is the same as a merger except that an entirely new firm is created. In a consolidation, both the acquiring firm and the acquired firm terminate their previous legal existence. An advantage of using a merger to acquire a firm is that it is legally straightforward and does not cost as much as other forms of acquisition. A disadvantage is that a merger must be approved by a vote of the shareholders of each firm. Merger or Consolidation Merger or Consolidation 4
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A firm can acquire another firm by purchasing target firm’s voting stock in exchange for cash, shares of stock, or other securities. A tender offer is a public offer to buy shares made by one firm directly to the shareholders of another firm. If the shareholders choose to accept the offer, they tender their shares by exchanging them for cash or securities. A tender offer is frequently contingent on the bidder’s obtaining some percentage of the total voting shares. If not enough shares are tendered, then the offer might be withdrawn or reformulated. Acquisition of Stock Acquisition of Stock 5
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One firm can acquire another by buying all of its assets. A formal vote of the shareholders of the selling firm is required. Advantage of this approach – it avoids the potential problem of being left with minority shareholders that may occur in an acquisition of stock. Disadvantage of this approach – it involves a costly legal process of transferring title.
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