Chapter29_embal

Chapter29_embal - Chapter 29: Mergers and Acquisitions...

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WSU EMBA Corporate Finance 29-1 Chapter 29: Mergers and Acquisitions Basic terms and definitions concerning mergers and acquisitions Reasons for mergers and acquisitions Real world empirical observations An example of valuing a potential acquisition
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WSU EMBA Corporate Finance 29-2 Mergers and Acquisitions Merger: One firm absorbs the assets and liabilities of the other firm in a merger. The acquiring firm retains its identity. In many cases, control is shared between the two management teams. Transactions were generally conducted on friendly terms. In a consolidation , an entirely new firm is created. Mergers must comply with applicable state laws. Usually, shareholders must approve the merger by a vote.
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WSU EMBA Corporate Finance 29-3 Mergers and Acquisitions Acquisition: Traditionally, the term described a situation when a larger corporation purchases the assets or stock of a smaller corporation, while control remained exclusively with the larger corporation. Often a tender offer is made to the target firm ( friendly ) or directly to the shareholders (often a hostile takeover). Transactions that bypass the management are considered hostile, as the target firm’s managers are generally opposed to the deal.
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WSU EMBA Corporate Finance 29-4 Mergers and Acquisitions In reality, there is always a bidder and a target. Almost all transactions could be classified as acquisitions . Some modern finance textbooks use the two terms interchangeably. Divestiture : a transaction in which a firm sells one of its subsidiaries or divisions to another firm. Spin-off : a transaction in which a firm either sells or issues all or part of its subsidiaries to its existing public investors , by issuing public equity . In 1997 PepsiCo spun-off its restaurant division. Shareholders received one share of the new restaurant company (TRICON), for every 10 issues of Pepsi they held.
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WSU EMBA Corporate Finance 29-5 Mergers and Acquisitions Target: the corporation being purchased, when there is a clear buyer and seller . Bidder: The corporation that makes the purchase, when there is a clear buyer and seller . Also known as the acquiring firm. Friendly: The transaction takes place with the approval of each firm’s management Hostile: The transaction is not approved by the management of the target firm.
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WSU EMBA Corporate Finance 29-6 Mergers and Acquisitions Strategic:
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Chapter29_embal - Chapter 29: Mergers and Acquisitions...

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