External Growth Through Mergers

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    External Growth Through Mergers - Presentation Transcript

    1. External Growth through Mergers
    2. You can download this presentation at: www.greatlesson.com Please visit www.greatlesson.com for more presentations on marketing, strategy, accounting, finance, and case solution
    3. TABLE 1-1 Largest acquisitions ever
    4. TABLE 1-2 Financial data on potential merging firms
    5. TABLE 1-3 Postmerger earnings per share
    6. FIGURE 1-1 Risk-reduction portfolio benefits
    7. Outline
      • Mergers vs. Consolidations
      • Why Merge?
      • 3 Types of Mergers
      • Motives of Selling Stockholders
      • Terms of Exchange
      • Negotiated vs. Tender Offers
      • Wall Street Takeover Terminology
    8. Mergers vs. Consolidations
      • A business combination can be either a merger or a consolidation
      • Merger:
        • a combination of 2 or more companies where the resulting firm keeps the identity of the acquiring company
      • Consolidation:
        • when 2 or more companies are combined to form an entirely new entity
    9. Why Merge?
      • Financial motives:
        • – to reduce risk (the portfolio effect)
        • – to increase operating efficiency
        • – to improve access to financial markets
        • – to obtain a tax carry-forward benefit
      • Non financial motives:
        • – to expand marketing and management capabilities
        • – to allow for new product development
        • – to provide synergistic benefits (the “2+2=5” effect)
    10. 3 Types of Mergers
      • Horizontal Merger:
        • – unites direct competitors
        • – ex., 2 shoe companies combine
      • Vertical Merger:
        • – unites buyers and sellers
        • – ex., a shoe manufacturer buys a leather producer
      • Conglomerate Merger:
        • – merging of firms in totally unrelated industries
        • – ex., a shoe company joins with a beverage company
    11. Motives of Selling Stockholders
      • Desire to receive the acquiring firm’s stock which may have greater acceptability in the market
      • Provides stockholders an opportunity to diversify their holdings
      • Gain on sale of the stock at an attractive price
      • Officers of selling company may receive attractive postmerger management contracts and directorships in the acquiring firm
      • Avoids the bias against smaller businesses
    12. Terms of Exchange
      • Cash Purchases:
        • takes on many characteristics of a classical capital budgeting decision
      • Stock-For-Stock Exchange:
        • often a trade-off between an immediate gain or dilution in EPS and future growth
    13. Negotiated vs. Tender Offers
      • Negotiated Offer:
        • – a “friendly” merger that is negotiated between officers and directors of the participating corporations
        • – it is agreed upon by all sides
      • Takeover (or Unsolicited) Tender Offer:
        • – when a company attempts to acquire a target firm against its will (an “unfriendly takeover”)
        • – unsolicited tender offers for a target company have gained in popularity
    14. Wall Street Takeover Terminology
      • Saturday Night Special:
        • – a surprise offer made right before the market closes for the weekend
        • – takes the target company’s officers by surprise
      • White Knight:
        • – a third firm that management calls on to help it avoid an unfriendly takeover
        • – not always successful at winning
    15. Thank You

    + Adhirock Adhirock , 3 years ago

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