Chapter 10 for Spring 2011

Chapter 10 for Spring 2011 - Chapter10...

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Mergers and Acquisitions Chapter 10
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Mergers and Acquisitions? Mergers and acquisitions are one main vehicle by  which firms pursue their diversification strategy Another main way is internal development Main theme of the chapter: While firms often use acquisitions as a means for entering new  markets, they typically don’t earn economic profits from those  acquisitions “Target” firm (i.e., acquired firm) shareholders typically benefit They receive price for shares above pre-acquisition market value Acquiring firm shareholders typically don’t benefit
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Mergers and Acquisitions? Mergers and acquisitions are NOT the same thing
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Mergers and Acquisitions? Acquisitions  involve one firm purchasing another  firm Usually the acquiring firm is larger than the target firm Means of purchase can vary: Cash on hand Borrowing Acquiring firm stock Magnitude of acquisition can vary: All shares Majority of shares
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Mergers and Acquisitions? Acquisition premium Price paid for target firm (to shareholders) is typically  significantly greater than market price of stock before there  was awareness of the acquisition effort Info usually leaks before official, public announcement of offer The difference between the price paid and the market price  before awareness = “acquisition premium” Acquirer purchase of target firm stock = tender offer I.e., offer made to shareholders to tender their shares 
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Mergers and Acquisitions? Mergers  are the combining of two firms of roughly  the same size and status Daimler and Chrysler HP and Compaq Mergers tend to involve both firms acquiring the  assets of the other firm Mergers tend to be friendly But, over time one firm tends to become dominant Daimler > Chrysler HP > Compaq
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Value of Mergers and Acquisitions diversification strategy Main advantage is speed compared to internal development Also, employed to achieve other goals
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Chapter 10 for Spring 2011 - Chapter10...

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