Intermediate Finance Chapter 26

Intermediate Finance Chapter 26 - Chapter 26 Mergers and...

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11/8/2011 1 Chapter 26 Mergers and Acquisitions Chapter Outline The Legal Forms of Acquisitions Motives Hostile Takeovers Defensive Tactics Some Evidence on Acquisitions: Do M&A Pay? Divestitures and Restructurings 26-2
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11/8/2011 2 Mergers and Acquisitions (M&A) Merger A transaction where two firms agree to integrate their operations on a relatively coequal basis because they have resources and capabilities that together may create a stronger competitive advantage A merger happens when two firms agree to go forward as a single new entity. For example, in the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new company, GlaxoSmithKline, was created. A purchase deal will also be called a merger when both CEOs agree to joining together. 26-3 Mergers and Acquisitions When one company takes over another and clearly establish itself as the new owner, the purchase is an acquisition . The target company ceases to exist, the buyer “swallows” the business and the buyer’s stock continues to be traded. An unfriendly purchase deal is always an acquisition .
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11/8/2011 3 Classifications of M&A Horizontal both firms are in the same industry, attempt to achieve economies of scale Vertical firms are in different stages of the production process One firm acquires a supplier or another firm that is closer to its existing customers Conglomerate firms are unrelated with the goal of diversification Financing M&A Cash acquisition Such transactions are usually termed acquisitions rather than mergers because the shareholders of the target company are removed from the picture and the target comes under the (indirect) control of the bidder's shareholders.
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