Class 3 MA BSBA 2011 Strategy

Class 3 MA BSBA 2011 Strategy - BUSI599 Mergers &...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon
BSBA – Spring 2011 1 Prof. David Ravenscraft Kenan-Flagler Business School University of North Carolina Session 3: Developing a Successful M&A Strategy
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Class 3 Outline Evidence on Merger Success Roadblocks to Success Mini cases Auction Aetna US Healthcare 2
Background image of page 2
Organization Let me know if you did not get my email cannot access blackboard Having trouble with Xanedu course readings cannot attend a class Laptops Not needed today or Mondays Starting next Wednesday bring laptop for next 8 classes Pictures News Articles: Goldman recommends options for M&A Potential 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Evidence on Merger Success Good news Stock market believes most mergers create value (sum of target and bidder returns generally positive) Targets receive a 20-30% average premium Mergers improve plant productivity Bad news Most accounting studies find post-merger profits decline significantly Most surveys of practitioners strongly suggest most mergers do not work Bidders tend to lose on announcement of deal Bidders tend to lose value after the announcement Six previous merger waves, all mixed success Managers of bad mergers tend to get fired The odds are against the bidder in the merger game
Background image of page 4
5 What Types of Deals Do Better? Cash deals (in US) Acquirers with good corporate governance LBOs and Private Equity (except recent deals) Targets with low or modest growth or book/market Cross-border M&A, especially good corp. gov. Focused acquisitions: (Conglomerate discount) Experienced acquirers Target & bidder board connected deals
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 What Types of Deals Do Worse?
Background image of page 6
Some Recent Examples of Troubled Ebay’s 2005 acquisition of Skype – $3.1 billion deal, 45% written off in 2007, sold in 2009 Sprint’s $35 billion deal for Nextel in 2005, “a case study of a poorly conceived merger”, CEO fired, wrote down 30 bill by 08 Alcatel $13 billion acquisition of Lucent in late 2006, combined company worth below $5 billion in 2008 StoraEnso sold in 2007 Consolidated Paper for $2.52 billion, bought it in 2000 for over $5 billion Boston Scientific acquisition of Guidant in 2006 wiped out $14 billion in stock value Wachovia’s acquisition of Golden West Financial for $25.5 billion key contributor to Wachovia’s downfa ll 7
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Acquisition Auction Example Sealed single bid auction Winning bid pays value of bid and wins value of the company CEO really wants this company Bid too low you’re fired CEO does not want to overpay Bid too high you’re fired
Background image of page 8
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
COMPARISON OF AUCTION RESULTS Most Recent Recent Auctions Least Recent 100% 90% 80% 70% 60% 50% 40% 30% Percent of Winner Source: Goldman Sachs Empirical Data 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Target Identification & Approach
Background image of page 10
How to help avoid auctions?
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 29

Class 3 MA BSBA 2011 Strategy - BUSI599 Mergers &...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online