RSM333 lecture7 - Mergers and Acquisitions Outline I....

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Mergers and Acquisitions 7 Outline I. Definition III. The valuation problem IV.Synergies V. Who gains?
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1 Sabrina Buti, Rotman School of Management, RSM 333 s An acquisition refers to the absorption of one firm by another. c The acquiring firm retains its name and identity, and acquires all the assets and liabilities of the acquired firm. c The acquired firm ceases to exist as a separate entity. s A merger is the same as an acquisition except that an entirely new firm is created. c Both the acquiring firm and the acquired firm terminate their previous legal existence. s Merger advantage: it is legally straightforward and does not cost as much as other forms of acquisition. s Merger disadvantage: a merger must be approved by a vote of the shareholders of each firm. Merger or Acquisition
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Acquisition of Stock s A firm can acquire another firm by purchasing target firm’s voting stock in exchange for cash, shares of stock, or other securities . s 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 – If not enough shares are tendered, then the offer might be withdrawn or reformulated. 2 Sabrina Buti, Rotman School of Management, RSM 333
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3 Acquisition of Assets s One firm can acquire another by buying all of its assets. s A formal vote of the shareholders of the selling firm is required. s Advantage of this approach: it avoids the potential problem of having minority shareholders that may occur in an acquisition of stock. s Disadvantage of this approach: it involves a costly legal process of transferring title. Sabrina Buti, Rotman School of Management, RSM 333
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4 s Most corporations have or should have as a major goal , the maximization of the value of the corporation. s They will move towards this goal by accepting projects that add value (positive NPV). s This is possible because they have a competitive advantage . s Examples of competitive advantage: price, quality/service, market power, innovating… CORPORATE STRATEGY - Definition Corporate strategy is the means by which a corporation will gain and sustain a competitive advantage.
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Sabrina Buti, Rotman School of Management, RSM 333 The time constraint s A company may wake up one day and determine that a change in strategy is needed. s Perhaps some of its assets are clearly becoming uncompetitive, and should be divested. s A change in strategic direction is likely to imply the company must develop/purchase some new assets. s
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RSM333 lecture7 - Mergers and Acquisitions Outline I....

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