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Lecture Note Seven_Tsing Hua_2009 - Lecture Note 7 Mergers...

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Corporate Finance Lecture Note 7 1 Lecture Note 7 Mergers and Acquisitions
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Corporate Finance Lecture Note 7 2 What is in This Note? The Basic Forms of Acquisitions Sources of Synergy The NPV of a Merger Do Mergers Add Value? Reference: Chapter 29 of RWJJ, Chapter 32 of BMA
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Corporate Finance Lecture Note 7 Corporate Finance Lecture Note 7 3 Roadmap Roadmap Be able to define the various terms Be able to define the various terms associated with M&A activity associated with M&A activity Understand the various defensive tactics Understand the various defensive tactics that are available that are available Understand the various reasons for Understand the various reasons for mergers and whether or not those reasons mergers and whether or not those reasons are in the best interest of shareholders are in the best interest of shareholders Understand the various methods for paying Understand the various methods for paying for an acquisition for an acquisition
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Corporate Finance Lecture Note 7 4 Takeover Methods and Defensive Tactics
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Corporate Finance Lecture Note 7 Corporate Finance Lecture Note 7 5 Roadmap: The Basic Forms of Roadmap: The Basic Forms of Acquisitions Acquisitions There are three basic legal procedures that There are three basic legal procedures that one firm can use to acquire another firm: one firm can use to acquire another firm: Merger or Consolidation Merger or Consolidation Acquisition of Stock Acquisition of Stock Acquisition of Assets Acquisition of Assets
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Corporate Finance Lecture Note 7 6 Merger versus Consolidation Merger One firm is acquired by another Acquiring firm retains name and acquired firm ceases to exist Advantage – legally simple Disadvantage – must be approved by stockholders of both firms Consolidation Entirely new firm is created from combination of existing firms
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Corporate Finance Lecture Note 7 7 Acquisitions of stocks A firm can be acquired by another firm or individual(s) purchasing voting shares of the firm’s stock Tender offer – public offer to buy shares Stock acquisition No stockholder vote required Can deal directly with stockholders, even if management is unfriendly May be delayed if some target shareholders hold out for more money – complete absorption requires a merger
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Corporate Finance Lecture Note 7 8 Acquisition of Assets Classifications Horizontal – both firms are in the same industry Vertical – firms are in different stages of the production process Conglomerate – firms are unrelated
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Corporate Finance Lecture Note 7 9 Varieties of Takeovers Takeovers Acquisition Proxy Contest Going Private (LBO: will be discussed later) Merger Acquisition of Stock Acquisition of Assets
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