M&A_ValuationExampleRoundatable

How does jarrell feel about market efficiency ma and

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Unformatted text preview: Cliff Smith Why is it important for directors and investors to understand whether M&A is good What additional considerations are there when gauging the value of M&A activity? A World without M&A James Owen What is meant by the following from James Owen o M&A ensures that resources are allocated to their “highest value use” o The separation of ownership and control in public firms increases the control premiums needed to ‘liberate’ the assets o M&A is needed to ‘work off’ excess capacity Accounting for Mergers Marla Sincavage Major concern is SFAS 141 and 142 o Capitalization and amortization of intangibles How are customer relationships and patents treated R&D? Goodwill? The View from Wall Street Matt Ostrower Experience is mainly in real estate His ‘informal testing’ indicates negative returns for acquirers of public companies o Does he think this reflects investment bankers pushing firms into it? o What about empire building? o Has also seen deals that take years to pay off… How does he feel about market efficiency? Further Discussion Bruner responds to some comments from the private sector: Market efficiency: market appears to be right, on average Length of analysis: Longer-term analysis cannot control for confounding factors Conflicts of interest (investment banks, empire building): yes, but M&A is still needed o Otherwise bankruptcy courts (rather than the market) would reallocate assets Concern with accounting: cannot let accounting considerations drive decisions (obscure NPV ) Further Discussion Sincavage: “for whatever reason, my clients seem very anxious to avoid earnings dilution” Improving the accounting can facilitate more deals This may reflect earnings-based compensation Ostrower: accounting matters because the short-term is important E.g. access to capital o Accounting is more trustworthy? Zupan: some studies show markets see through dilution Pooling versus purchase Owen: accounting does matter Finance with convertible preferreds o Book income rather than losses in early years o Manipulation? The Good Old Days of Hostile Takeovers Jarrell Skeptical about current M&A Courts effectively shut down hostile takeovers Management always wins (golden parachutes) Discipline is weak now Smith Williams Act and courts are reducing acquirer return Must disclose strategy for all others to see Zupan Institutional investors, active investors, and hedge funds provide some of the discipline from ‘good old days’...
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This document was uploaded on 01/15/2014.

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