公司理财原版英文课件Chap029

Diversification

Shareholders who wish to diversify can accomplish this at much lower cost with one phone call to their broker than can management with a takeover.
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29.1 The Basic Forms of Acquisitions

There are three basic legal procedures that one firm can use to acquire another firm:

Merger or Consolidation Acquisition of Stock Acquisition of Assets
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Cash Acquisition

The NPV of a cash acquisition is:

NPV = (VB + ΔV) – cash cost = VB* – cash cost VAB = VA + (VB* – cash cost)

Value of the combined firm is:

No stockholder vote required Can deal directly with stockholders, even if management is unfriendly May be delayed if some target shareholders hold out for more money – complete absorption requires a merger Horizontal – both firms are in the same industry Vertical – firms are in different stages of the production process Conglomerate – firms are unrelated
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29.4 Two Financial Side Effects of Acquisitions

Earnings Growth

If there are no synergies or other benefits to the merger, then the growth in EPS is just an artifact of a larger firm and is not true growth (i.e., an accounting illusion).
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Synergy



Suppose firm A is contemplating acquiring firm B. The synergy from the acquisition is Synergy = VAB – (VA + VB) The synergy of an acquisition can be determined from the standard discounted cash flow model: T

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Chapter Outline
29.1 The Basic Forms of Acquisitions 29.2 Synergy 29.3 Sources of Synergy 29.4 Two Financial Side Effects of Acquisitions 29.5 A Cost to Stockholders from Reduction in Risk 29.6 The NPV of a Merger 29.7 Friendly versus Hostile Takeovers 29.8 Defensive Tactics 29.9 Do Mergers Add Value? 29.10 The Tax Forms of Acquisitions 29.11 Accounting for Acquisitions 29.12 Going Private and Leveraged Buyouts 29.13 Divestitures
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29.7 Friendly vs. Hostile Takeovers


ቤተ መጻሕፍቲ ባይዱ
In a friendly merger, both companies’ management are receptive. In a hostile merger, the acquiring firm attempts to gain control of the target without their approval.

Both Firms Have Debt


How Can Shareholders Reduce their Losses from the Coinsurance Effect?

Retire debt pre-merger and/or increase post-merger debt usage.

VAB = VA + VB + DV
Cost of acquisition
Depends on the number of shares given to the target stockholders Depends on the price of the combined firm’s stock after the merger

Considerations when choosing between cash and stock

Sharing gains – target stockholders do not participate in stock price appreciation with a cash acquisition Taxes – cash acquisitions are generally taxable Control – cash acquisitions do not dilute control

Tax Gains


Incremental new investment required in working capital and fixed assets
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Calculating Value

Avoiding Mistakes

Do not ignore market values Estimate only Incremental cash flows Use the correct discount rate Do not forget transactions costs

Often, the entire NPV goes to the target firm. Remember that a zero-NPV investment may also be desirable.

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Stock Acquisition


Value of combined firm

Intellectual capital often walks out the door when acquisitions are not handled carefully. Traditionally, acquisitions deliver value when they allow for scale economies or market power, better products and services in the market, or learning from the new firms.
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29.6 The NPV of a Merger


Typically, a firm would use NPV analysis when making acquisitions. The analysis is straightforward with a cash offer, but it gets complicated when the consideration is stock.


Consolidation

Entirely new firm is created from combination of existing firms
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Acquisitions


A firm can be acquired by another firm or individual(s) purchasing voting shares of the firm’s stock Tender offer – public offer to buy shares Stock acquisition
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Merger versus Consolidation

Merger
One firm is acquired by another Acquiring firm retains name and acquired firm ceases to exist Advantage – legally simple Disadvantage – must be approved by stockholders of both firms
Synergy =
S
t=1
DCFt
(1 + R)t
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29.3 Sources of Synergy


Revenue Enhancement Cost Reduction


Replacement of ineffective managers Economy of scale or scope Net operating losses Unused debt capacity
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29.5 A Cost to Stockholders from Reduction in Risk

The Base Case

If two all-equity firms merge, there is no transfer of synergies to bondholders, but if… The value of the levered shareholder’s call option falls.
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29.2 Synergy


Most acquisitions fail to create value for the acquirer. The main reason why they do not lies in failures to integrate two companies after a merger.
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Classifications

Varieties of Takeovers
Merger
Acquisition Acquisition of Stock Acquisition of Assets
Takeovers
Proxy Contest Going Private (LBO)
Chapter 29
Mergers and Acquisitions
McGraw-Hill/Irwin
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
Key Concepts and Skills
Be able to define the various terms associated with M&A activity Understand the various reasons for mergers and whether or not those reasons are in the best interest of shareholders Understand the various methods for paying for an acquisition Understand the various defensive tactics that are available