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Mergers, Aqcuisitions and Corporate Control

Mergers, Aqcuisitions and Corporate Control. Recent Mergers. Definition . Merger: Combination of two firms into one, with the acquirer assuming assets and liabilities of the target firm. Proxy Contest. Tender Offer. Acquisition. Merger. Leveraged Buy-Out. Management Buy-Out.

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Mergers, Aqcuisitions and Corporate Control

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  1. Mergers, Aqcuisitions and Corporate Control

  2. Recent Mergers

  3. Definition Merger: Combination of two firms into one, with the acquirer assuming assets and liabilities of the target firm.

  4. Proxy Contest Tender Offer Acquisition Merger Leveraged Buy-Out Management Buy-Out The Merger Market Tools Used To Acquire Companies

  5. Proxy Contest • Takeover attempt in which outsiders compete with management for shareholders’ votes. • Also called Proxy Fight • Most proxy contests fail because outsiders use their own limited money while management can use the corporation’s funds and lines of communication with shareholders to defend itself

  6. Acquicisiton • Takeover of a firm by purchase of that firm’s common stock or assets • The acquiring company runs the firm after merger • Must have the approval of at least 50% of the shareholders of each firm

  7. Leveraged Buy-Out • Acquisition of the firm by a private group using substansial borrowed funds.

  8. Management Buy-Out • Acquisition of the firm by its own management in a leveraged buyout

  9. Tender Offer • Takeover attempt in which outsiders directly offer to buy the stock of the firm’s shareholders. • The acquiring firm can bypass the target firm’s management altogether. • If the tender offer is succesful, the buyer will get control and can replace the existing management

  10. Sensible Reasons for Mergers Economies of Scale A larger firm may be able to reduce its per unit cost by using excess capacity or spreading fixed costs across more units. $ Reduces costs $ $

  11. Pre-integration (less efficient) Post-integration (more efficient) Company Company S S S S S S S S Sensible Reasons for Mergers Economies of Vertical Integration • Control over suppliers “may” reduce costs. • Over integration can cause the opposite effect.

  12. Firm A Firm B Sensible Reasons for Mergers Combining Complementary Resources Merging may results in each firm filling in the “missing pieces” of their firm with pieces from the other firm.

  13. Sensible Reasons for Mergers Mergers as a Use for Surplus Funds If your firm is in a mature industry with few, if any, positive NPV projects available, acquisition may be the best use of your funds.

  14. Evaluating Mergers • Questions • Is there an overall economic gain to the merger? • Do the terms of the merger make the company and its shareholders better off? ????

  15. Evaluating Mergers • Economic Gain

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