ECON 3420 Manuscript 9

ECON 3420 Manuscript 9 - 1 Mergers and Acquisitions...

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Mergers and Acquisitions (M&A) "If the target has agency problems, why not the acquirer?" M&A == Compa11y A (the acquirer) acquires a significant proportion of the shares Con1pany B (the target) so that the control and management Company B shift to Con1pany A. How can this happen? 1. Con1pany A uses its own cash to buy up Company B. 1 2. Company A borrows fron1 banks or bondholders to up the shares Company B. (Leveraged buyout) Company A may be a small company. But it can borrow large sums money to acquire Company B because it can use the assets the target as collateral. 3. Company A can issue new shares and use them to pay for the shares B. After the M&A, the shareholders Company B become shareholders the merged company. Managen1ent buyout == the managers a company a controlling number shares
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2 of their own company. (As a remedy owner- manager separation problen1.) Hostile Takeover == Managers (or Board Directors) Company B reject the takeover offer Company A and advise their shareholders to hold on to their shares. Friendly Takeover== Managers (or BOD) Company B accept the takeover offer Company A.
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Motivations of M&A 1. Market for Corporate Control If the target is not
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This note was uploaded on 03/03/2012 for the course ECON 3420 taught by Professor Kwong during the Spring '11 term at CUHK.

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ECON 3420 Manuscript 9 - 1 Mergers and Acquisitions...

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