Summary: Mergers & Acquisitions
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Lecture notes
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(1) Two different approaches to stock valuation
- Dividend Growth Model
- Free Cash Flow (FCF) -
(2) Two different types of corporate restructuring
- Operational restructuring
- Financial restructuring -
(2) Seven motivations for M&A's
- Operating synergy
- Strategic realignment
- Diversification
- Financial consideration
- Market power
- Ego/hubris
- Tax considerations -
(2) Six merger waves
- Horizontal consolidation: 1897-1904
- Increasing concentration: 1916-1929
- Conglomerate era: 1965-1969
- Retranchment era: 1981-1989
- Age of strategic megamergers: 1992-2000
- Age of cross-border and horizontal megamergers: 2003-2007 -
(2) Four offensive takeover tactics
- The bear hug
- Open market purchase
- Proxy contest
- Tender offer -
(2) (Dis)advantages of Open market purchase (3-4)
Advantages:
- may lower transaction costs
- may discourage other bidders
- creates profit if target purchases the toehold's position
Disadvantages:
- can result in a less than controlling interest
- limits on the amount without disclosure
- some shareholders could hold for a higher price
- could suffer if takeover fails -
(2) (Dis)advantages of a proxy contest (1-1)
Advantage:
- least expensive compared to open market purchase or tender offer
Disadvantage:
- relatively low probability of success if stocks are held widely -
(2) (Dis)advantages of a tender offer (1-1)
Advantage:
- bidder is not bound tot buy the shares unless desired number of shares is tendered
Disadvantage:
- tends to be the most expensive -
(2) Three types of preoffer defenses
- poison pills
- shark repellents
- golden parachutes -
(2) Two types of poison pills
- flip-over pill (buy acquirer's stock)
- flip-in pill (buy target's stock)
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