Lecture 4 - Investment Banking and Brokerage M&A M&A...

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Investment Banking and Brokerage M&A
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1:44:43 PM 2 M&A Fundamentals: Terminology Corporate restructuring includes the activities involving expansion or contraction of a firm’s operations or changes in its asset or financial (ownership) structure. A merger is defined as the combination of two or more firms, in which the resulting firm maintains the identity of one of the firms, usually the larger one. Consolidation is the combination of two or more firms to form a completely new corporation
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1:44:43 PM 3 M&A Fundamentals: Terminology (cont.) A holding company is a corporation that has voting control of one or more other corporations. Subsidiaries are the companies controlled by a holding company. The acquiring company is the firm in a merger transaction that attempts to acquire another firm. The target company in a merger transaction is the firm that the acquiring company is pursuing.
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Legal Options Acquisition of assets of the target Acquisition of the shares of the target to get control Legal merger Consolidation
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Asset Acquisition Acquisition Co Target assets $ or shares
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Share Acquisition Acquisition Co Target $ or shares S/H Target
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Merger Acquisition Co Target shares S/H
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8 M&A Fundamentals: Terminology (cont.) A friendly merger is a merger transaction endorsed by the target firm’s management, approved by its stockholders, and easily consummated. A hostile merger is a merger not supported by the target firm’s management, forcing the acquiring company to gain control of the firm by buying shares in the marketplace. A strategic merger is a transaction undertaken to achieve economies of scale.
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9 M&A Fundamentals: Terminology (cont.) A financial acquisition (non strategic)  is a transaction undertaken with the goal of restructuring the acquired company to improve its cash flow and unlock its hidden value. Example: private equity
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10 In many cases, existing target company management will implement takeover defensive actions to ward off the hostile takeover. The white knight strategy is a takeover defense in which the target firm finds an acquirer more to its liking than the initial hostile acquirer and prompts the two to compete to take over the firm. A poison pill is a takeover defense in which a firm issues securities that give holders rights that become effective when a takeover is attempted. Leveraged recapitalization is a takeover defense in which the target firm pays a large debt-financed cash dividend, increasing the firm’s financial leverage in order to deter a takeover attempt Golden parachutes are provisions in the employment contracts of key executives that provide them with sizeable compensation if the firm is taken over.
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