Lecture11

Lecture11 - Mergers and Acquisitions Traditional Approach...

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1 Mergers and Acquisitions Traditional Approach z Prices are efficient z Market prices of both the acquiring firm and the target firm coincide with their fundamental values z Mergers hold the potential for synergy Managers of acquiring firm will only go forward if the value of the synergy is positive
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2 Behavioral Issues z Winners’ Curse z z Other issues?? Winners’ Curse z Auction theory z Winning bid in an auction results in the winner overpaying
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3 Overconfidence & Excessive Optimism z Symmetric Information, Rational Managers and Efficient Prices z Excessive Optimism and Overconfidence Æ Inefficient Prices and Acquisition Premium Optimistic, Overconfident Executives z Hubris hypothesis z
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4 Cash Flow z Financially constrained firms run by excessively optimistic, overconfident CEOs choose not to go to the capital markets for acquisition funding z Example – AOL Time Warner z In January 2000, America Online (AOL) announced its intention to acquire the media conglomerate Time
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This note was uploaded on 09/03/2009 for the course AEM 4230 taught by Professor Bogan,v. during the Fall '08 term at Cornell.

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Lecture11 - Mergers and Acquisitions Traditional Approach...

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