FIN 620-session10 agenda

FIN 620-session10 agenda - FIN 620 Capital Markets,...

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FIN 620 Capital Markets, Institutions, and Long-Term Financial Management Session 10  Agenda 1. Lecture Notes/Comments 2. Power points 3. Self Study Materials 4. Homework 5. Term paper 6. Class Discussion 1. Lecture Notes/Comments RWJ, Chapter 29 In chapter 29 we first study Mergers and Acquisitions (or M&A as it is popularly known in the industry, Chapter 29 RWJ). The basic forms of acquisitions are Mergers and Consolidation. An alternative to acquisition of a firm is the acquisition of specific desirable assets of a firm. If the value of the combined firm exceeds the sum of the value of the individual firms then we have (positive) Synergy which could be due to cost savings, market power, tax savings etc. A takeover can be with the consent of the target firm (friendly) or without (hostile). In the event of a hostile takeover management of the target firm may resort to a variety of takeover defenses. Research shows that the gains in value from mergers are largely appropriated by shareholders of target firms and shareholders of the acquirer firms earn zero or even a small negative return. The second part of this session (Chapter 30 RWJ) covers financial distress for firms. This may result in a bankruptcy filing, in which case the firm is afforded some protection from its creditors but has to accept oversight by a bankruptcy judge. An alternative is a private workout between the firm and its creditors. The Basic Forms of Acquisitions: Merger or Consolidation Bidder firm is the company making an offer to buy the stock or assets of another firm Target firm is the firm that is being sought Consideration is the cash or securities offered in an acquisition or merger Merger is the complete absorption of one company by another (assets and liabilities). The bidder remains, and the target ceases to exist. Consolidation is when a new firm is created. Joined firms cease their previous existence.
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Acquisition of stock is taking control by buying the voting stock of another firm with cash, securities or both. Tender offer is an offer by one firm or individual to buy shares in another firm from any shareholder. Such deals are often contingent on the bidder obtaining a minimum percentage of the shares; otherwise, no go. Some factors involved in choosing between a tender offer and a merger: 1. No shareholder vote is required for a tender offer. Shareholders choose to sell or not. 2. The tender offer bypasses the board and management of the target firm. 3. In unfriendly bids, a tender offer may be a way around unwilling managers. 4. In a tender offer, if the bidder ends up with less than 80% of the target firm’s stock, it must pay taxes on a portion of the dividends paid by the target. 5. Complete absorption requires a merger. A tender offer is often the first step toward a formal
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FIN 620-session10 agenda - FIN 620 Capital Markets,...

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