another buyer to prove them right. However, they would not have
searched for a white knight absent AlliedSignals bid.
WHO GETS THE GAINS? Is it better to own shares in the acquiring
firm or the target? In general, shareholders of the target firm do best.
in which it already had a holding. This would make Telecom a still
larger bite for Olivetti to swallow. A third
possibility was for Telecom to borrow a large amount of cash and use
it to buy back some of its shares. Investors would then know that
outcome of experiments reasonably well, those working models can
help to tell them what they need to do to achieve a certain desired
result. That result might be the production of an especially strong
plastic, or it might be the detection of a toxin when
ratio of the merged firm ought to differ from Castless premerger
ratio? d. How are the gains from the merger split between
shareholders of the two firms if the market is fooled as in part (c)?
12. Stock versus Cash Offers. Sweet Cola Corp. (SCC) is biddin
management. g. The cost of a merger is always independent of the
economic gain produced by the merger.
4. Merger Tactics. Connect each term to its correct definition or
A. LBO 1. Attempt to gain control of a firm by winning the votes of its
gains and dont notice that these gains are at the expense of long-term
16For a history of the role of Milken in the development of the junk
bond market, see C. Bruck, The Predators Ball: The Junk Bond
Raiders and the Man Who Staked Them (New Yo
management team. For example, in 1985 Pantry Pride, a small
supermarket chain recently emerged from bankruptcy, made a bid for
the cosmetics company Revlon. Revlons assets were more than five
times those of Pantry Pride. What made the bid possible (and
investors, and the company was widely viewed as ripe for change in
operations and management. AlliedSignal believed that it could make
these changes faster and better than AMPs incumbent management.
So in summer 1998, when AMP announced that its quarterly
attempt to identify over- or undervalued stocks by searching for
patterns in past prices. tender offer: Takeover attempt in which
outsiders directly offer to buy the stock of the firms shareholders.
terms of sale: Credit, discount, and payment terms offer
will be 11 million. The postmerger share price is $49.09, so Cislunar
and its shareholders still come out ahead. MINICASE McPhee Food
Halls operated a chain of supermarkets in the west of Scotland. The
company had had a lackluster record and, since the de
federal court. Then the Hixon family, descendants of AMPs cofounder, made public a letter to AMPs management expressing
dismay and asking, Who do management and the board work for?
The central issue is that AMPs management will not permit
variable is listed in the first blank, and the dependent variable is listed
in the second blank. In the popcorn experiment, we would state the
purpose as: To see how changing the brand of popcorn affects the
percentage of unpopped kernels. The independent
States economy. We warn you, however, that there are no neat
answers. Our assessment has to be mixed and tentative.
Mergers and the Economy
MERGER WAVES Mergers come in waves. The first episode of
intense merger activity occurred at the turn of the twenti
profit. Arbitrageurs in merger battles often take very large risks
indeed. Their activities are sometimes known as risk arbitrage.
586 SECTION SIX
documented LBO of them all was the $25 billion takeover of RJR
Nabisco in 1988 by Kohlberg Kravis Roberts (K
sold to the successful suitor. Other winners include investment
bankers, lawyers, accountants, and in some cases arbitrageurs, or
arbs, who speculate on the likely success of takeover bids.
Speculate has a negative ring, but it can be a useful social serv
gains went to selling stockholders, not raiders. For example, the
biggest winners in the RJR Nabisco LBO were the companys
stockholders. We should therefore consider briefly where these gains
may have come from before we try to pass judgment on LBOs. Ther
the charge an atom will acquire when it forms an ion by gaining or
losing electrons using the octet rule. 4. I can write the names and
formulas of ionic compounds.
5. I can indicate the shape and polarity of simple covalent compounds
publicly disagreed with AMPs stubbornness. The College Retirement
Equities Fund (CREF), one of the largest U.S. pension funds, then
took an extraordinary step: it filed a legal brief supporting
AlliedSignals case in the
An Italian Takeover Battle
of merger makes for more active days or sleepless nights. We do know
that merger activity is very costly. For example, in the RJR Nabisco
buyout, the total fees paid to the investment banks, lawyers, and
accountants amounted to over $1 billion. Even if th
588 SECTION SIX
personal fortunes are riding on the LBOs success. They become
owners rather than organization men or women. It is hard to measure
the payoff from better incentives, but there is some evidence of
improved operating efficiency in LBOs. Kapla
content, web-based collaborative model termed the FlexBook, CK12 intends to pioneer the generation and distribution of high-quality
educational content that will serve both as core text as well as provide
an adaptive environment for learning.
the two companies as separate entities are $20 million and $10
million, respectively. Velcro Saddles estimates that by combining the
two companies, it will reduce marketing and administrative costs by
$500,000 per year in perpetuity. Velcro Saddles is wil
Source: Republished with permission of Dow Jones, from Blades,
Batteries, and a Fifth of Gillette, from R. Lowenstein, Intrinsic
Value, The Wall Street Journal, September 19, 1996, p. C1;
permission conveyed through Copyright Clearance Center.
selling for $56 per share? KKR and other bidders were betting on two
things. First, they expected to generate billions of additional dollars
from interest tax shields, reduced capital expenditures, and sales of
assets not strictly necessary to RJRs core b
sensitivity analysis: Analysis of the effects of changes in sales, costs,
and so on, on project profitability. shark repellent: Amendments to a
company charter made to forestall takeover attempts. shelf
registration: A procedure that allows firms to file
reaction that goes to completion. 7. I can explain the concept of
dynamic equilibrium as it relates to chemical reactions. 8. I can
describe whether reactants or products are favored in equilibrium
when given the equilibrium constant. 9. I can predict the
Duracell is worth $7 billion, because Gillette isnt giving up $7 billion.
It is giving up a part in this case 20% of itself. Schematically,
Gillette is trading razor blades for batteries (not bucks for batteries),
and the results can be very different. Si
different colors of containers c) Water loss due to evaporation from
the soil d) The effect of insects which may attack one set of plants but
not the other
5) A student decides to set up an experiment to determine the
relationship between the growth rate