Лецк 19 Mergers and acquisitions

471 views
244 views

Published on

Лецк 19 Mergers and acquisitions

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
471
On SlideShare
0
From Embeds
0
Number of Embeds
6
Actions
Shares
0
Downloads
13
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • It’s about 55%. That’s straight from The Wall Street Journal. 12/5/2000
  • Лецк 19 Mergers and acquisitions

    1. 1. Mergers and Acquisitions
    2. 2. The Basic Forms of Acquisitions  Modes   of acquiring a firm Acquisition of Stock Acquisition of Assets  Payment   for acquisition Cash Stock of acquiring firm
    3. 3. Determining the Synergy from an Acquisition   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.   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.
    4. 4. 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 usual discounted cash flow model: Σ T Synergy = t=1 ∆CFt (1 + r)t where ∆CFt = ∆Revt – ∆Costst – ∆Taxest – ∆Capital Requirementst
    5. 5. Source of Synergy from Acquisitions  Revenue Enhancement  Cost Reduction    Economies of scale from horizontal mergers Economies of vertical integration Elimination of inefficient management  Lower   taxes Net Operating Losses Unused Debt Capacity  Lower cost of capital
    6. 6. Calculating the Value of the Firm after an Acquisition  Avoiding    Mistakes Estimate only Incremental Cash Flows Use the Correct Discount Rate Do not Forget Transactions Costs • Fees to investment bankers, legal fees, etc.
    7. 7. Paying for the Acquisition  Cash or stock  VA = 500  VB = 100  VAB = 700  Synergy = 100  Premium   NA to acquire B = 50 (Acquisition cost of B) - VB = 25  PA = 20  NB = 10
    8. 8. Pay by Cash A pays 150 cash to shareholders of B  Number of outstanding shares of A does not change  Shareholders of B do not own any stock
    9. 9. Pay by Stock A issues new stock to buy stock of B  Number of outstanding shares of A increases  Shareholders of B own stock of A  How much new stock of A should be issued?  Stock exchange ratio “x : 1”  x shares of A for every 1 share of B
    10. 10. Pay by Stock (contd.)  The acquisition through stock should be equivalent to acquisition by cash in terms of value Target firm payout = α × New firm value α= New shares issued Old shares + New shares issued
    11. 11. Pay by Stock (contd.) α × VAB = 150 α = 0.2143  New shares issued by A = 6.819  To acquire 10 shares of B  Stock exchange ratio = 0.6819 : 1

    ×