FI.Chapter25 - rb) 6 $ ,t./ . ts*.t!. ':. :lr '...

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rb) 6 $,t./ . ts*. .t!. Sq;: i".dil' ':. :lr 25 ' -i, u r,, )/1 a' 1;q11;, L,, li,,1,'.,,, r,,,,, ]t /--^. . :1ro.€r& R :, rr r, 'r&', ,..t .,trrr.,. r . -,2 I illiu| o .,. 't rir, .;ill' ." i ,, ni('ndly mcrgcr. llhcn th! cle.rl rvas com- pl€tcd on O(tobcr l, 2005, it created lhe worl(l's ldrgest consuncr g({xls compaDr', .,'\Ir- l-r'rr.,r'l ,l'{{, l,,t .l,e\,dr. (lombirrirrg Cillette nr)d l'&tl has alrcad! trr'(lt|fcd scveral wirncfs. \\hen lhe !le;rl rvrs . nnolrnccd, (lillcttc's shnrr.hol.ters sarv thL. vrlLre of lheir sk)cl< ris( bt more tllllr l7t. One parlicular r\innor \\rrs Cillette's Iirgcsl sh.rrehol.]er, 1 /arrcn Buffctt, s,ho oNn0d roughlv 9rr jl1jllir)n shnres. Othcr r|innfrs includcd Cilleitc's selrior exec- ii\'.s, irho saw the \1rltro of iheir stock and sto(k opirorls increns€, rud tlre invesimcnt banl(s ihat helpe(l ptlt lhc deal to8cihcr. e.--, rrr,l { r'r . I -.. I. Vlcrrill Lt'ncL1, .1rd LJUS each rcceirfd $3(l nrilliolr fronr ihc tf.rnsnction. While many applilrdcLl thc Jca1, othcfs Lrrliove that P&C r\'ill h.rc to $,ork har.l h) tr-|. \ .h. p .e I t.,r.l r,'. ,,r'1, 1 . V'.r'. r. r. r' r. I'r' l.'l r ll., r.',1 .r, .1 .! ',t rr .rinnr', I'1.'r', .1,.,1. h. nol rln,r,l''r, :,or'. \,,\" r n , rl r. In c"nrrr)rl. ),ar'. r.r(, -. .i. r. ! P 5.67% since ttrr' .olnPleLion oi ihe mcrgfl ,...u .rr- l,.r rl,( 5. .f 510. Ilerr.' rlrr. i u.'. .','r ,', \,lJ.,'. rl | ts Arr. -, rl rexr.,ir5 l. LJ {an rrl,. hJ th. J. .,1 lIUlv makes sense ltrr I)&C's sharehol.l(r\. \,,r! r", , .,. l, , l I I, l'.,C arl prrp ,I. rd. l in minLl ns yolr rcnd this chapter.
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882 Chopler 25 Mergere, LBO5, Divestiiures, dnd Holding Compdnies Most corporate groivth occuni by tulernai .rp4rrior, which takes place \\,hcn a firm's existiig divisions Srow through normal capital budgetinS activities. However, the most dramatic examples oI growth result from mergers, thc first topic covered in this chapter. Lc'L)erased b ya ls, ot LBOS, occur r,vhen a firm's siock is acquired by a small Sroup of invesbrs raiher than by another operaf ing company. Conditions change over time, causing firnrs to sell off, or divcst, major difisions to other fir s that can bctter uiilize the divested assets. Divestitures are also discusscd tu the chaptcr. Finall-v, we discuss the rol.lirS rorrp0,ry form of organization, h,herein one corporation olvns the stock of onc or more other comPanies. Th6 texibook! Web site conroins on Excel file rhot the choprer's colcu otions Ihe file for ihi, chopter n Fltt2 Ch E IDol Kir.rk, ond we e.co!,oge you ro open the lile ond fol 25.1 Rationale for Mergers Many reasons havebeen proposc{ by financial manaSers and theorists to account for the high level of U.S. merger activity. The primary motives behin.l corporate mergers are presenie.l in this section.' Synergy The prinrary motivation for most mergers is to increase the vaiue ofthe combjned enterprisc. U Companies A and B merge to form Company C, and if C's value exceeds that ofAand B taken separatel!,, then synergy is said to exist, and such a merger sho ld be b€neficial to both As and B's stockholder.2 Synergistic offccts can arise from five sources. (1) apc rst itry econorttics, which res lt from economi€s of scale in managemeni, mark€ting, production, or dishibution; (2)trirrcial fco,rdrT;es, hcLrLting lower transacticD cosis and beiter coverAge by security analysts,
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This note was uploaded on 06/08/2009 for the course FI 601-602 FI601-602 taught by Professor Prof.geary during the Spring '09 term at New Haven.

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FI.Chapter25 - rb) 6 $ ,t./ . ts*.t!. ':. :lr '...

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