BU393L18 Mergers (August 11)

BU393L18 Mergers (August 11) - Varieties of Takeovers...

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1 © Copyright 2010, Alan Marshall 1 Lectures 18 Lectures 18 -19 19 MERGERS, THE MARKET FOR CORPORATE CONTROL & RESTRUCTURING © Copyright 2010, Alan Marshall 2 Varieties of Takeovers Varieties of Takeovers Takeovers Acquisition Proxy Contest Going Private (LBO) Merger Acquisition of Stock Acquisition of Assets © Copyright 2010, Alan Marshall 3 Mergers and Consolidations Mergers and Consolidations > A combination of two firms that typically involves firms of similar size & value > Usually equal willingness on both sides > Typically, the name of the new firm is a combination of the names of the individual firms or a completely new name PriceWaterhouseCoopers BC Telus Nesbitt Burns © Copyright 2010, Alan Marshall 4 Mergers and Consolidations Mergers and Consolidations > Merger (statutory amalgamation) Combines 2 firms into 1: complete absorption of one firm by another. The acquired firm ceases to exist. > Consolidation: Same as a merger except an entirely new firm is created. > Both mergers and consolidations: Legally straightforward. Must be approved by a vote of shareholders in each of the 2 firms.
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2 © Copyright 2010, Alan Marshall 5 Takeover Takeover > Typically unequal-sized partners > Usually the larger firm is the surviving firm > Can range from friendly to hostile © Copyright 2010, Alan Marshall 6 Forms of Acquisition Forms of Acquisition > Acquisition of Stock - Target firm’s equity is purchased by bidder cash, shares or other securities used to pay > Acquisition of Assets - bidder acquires the assets and leaves the old firm as a shell Target firm’s shareholders must approve Vote at shareholders’ meeting Advantage: No minority shareholders Costly legal process to transfer title © Copyright 2010, Alan Marshall 7 LBO & MBO LBO & MBO LBO: Levered Buyout > Occurs when a small group or firm specializing in LBOs takes over the firm and takes it private MBO: Management Buyout > Firm is taken private by management in an LBO > Both typically use a lot of debt to finance © Copyright 2010, Alan Marshall 8 Proxy Contest Proxy Contest > Competition for the votes of shareholders to replace directors and management Sherritt-Gordon
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3 © Copyright 2010, Alan Marshall 9 Mergers Mergers vs vs Tender Offers Tender Offers > Mergers are (generally) friendly. They require the approval of both management teams/boards before stockholders vote. > Mergers are often done in an exchange of securities: Target shareholders receive common stock of the bidding firm They are not taxable events for the target stockholders © Copyright 2010, Alan Marshall 10 Mergers Mergers vs vs Tender Offers Tender Offers > Tender offer: a public offer to buy shares typically contingent on the bidder’s success in obtaining a percentage of the shares.
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BU393L18 Mergers (August 11) - Varieties of Takeovers...

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