MAF2002_Chapter30_Mergers&Acqusitions_Notes.pptx - Mergers and Acquisitions Outline \u2022 \u2022 \u2022 \u2022 \u2022 \u2022 \u2022 \u2022 \u2022 \u2022 \u2022 \u2022 The Basic Forms

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Mergers and Acquisitions Outline The Basic Forms of Acquisitions The Tax Forms of Acquisitions Accounting for Acquisitions Determining the Synergy from an Acquisition Source of Synergy from Acquisitions Calculating the Value of the Firm after an Acquisition A Cost to Stockholders from Reduction in Risk Two "Bad" Reasons for Mergers The NPV of a Merger Defensive Tactics Some Evidence on Acquisitions Summary and Conclusions 1
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The Basic Forms of Acquisitions There are three basic legal procedures that one firm can use to acquire another firm: Merger 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 the term merger regardless of the actual form of the acquisition. 2
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Merger or Consolidation 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 (typically 2/3s of the votes). 3
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Acquisition of Stock 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 If not enough shares are tendered, then the offer might be withdrawn or reformulated. 4
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Acquisition of Stock (Continued) Factors to consider in choosing an acquisition of stock for merger: Acquisition of shares: Requires no shareholder votes or meeting; Bidding firm deals directly with shareholders of target bypassing the target’s management and BoD. May be unfriendly. Minority shareholders may hold out in a tender offer. May end with a formal merger at a later date 5
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Acquisition of Assets 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 having minority shareholders that may occur in an acquisition of stock.
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