1 / 24

Mergers and takeover

Mergers and takeover. Measure of corporate growth. Increase in sales It indicates size or quantity in the market Increase in profit Operations into greater return for the shareholder Increase in assets Increase in firm’s operating resources. Mergers.

polly
Télécharger la présentation

Mergers and takeover

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Mergers and takeover

  2. Measure of corporate growth • Increase in sales • It indicates size or quantity in the market • Increase in profit • Operations into greater return for the shareholder • Increase in assets • Increase in firm’s operating resources

  3. Mergers • A merger is a combination of two or more businesses in which only one of the corporation survives. the other corporation ceases to exist and its assets and possibly debts are taken over by the surviving company

  4. Methods to bring a merger • Purchase of assets • Purchase of common stock • Exchange of stocks for assets • Exchange of stock per stock

  5. Acquisition • Taking over of assets in the process of external growth • Consolidation • Combination of two or more business into a third entirely a new business • The new corporation absorb the assets of original corporation ,which cease to exist

  6. Takeover • A takeover generally involves the acquisition of current block of equity capital of a company which enables the acquirer to exercise control over the affairs of the company. • Acquirer must buy more than 50% of the paid –up capital to enjoy complete control

  7. Regulatory principles • Transparency of all process • Interest of small shareholder • Realization of economic gain • No undue concentration of market power

  8. Pyramiding • Controlling many or several firms with relatively small • Investment in each of them. • It is a technique used to employ the parent subsidiary relationship for allowing one firm to gain control over other firm

  9. Justification of acquisition • Economies of sale • Utilization of production plant, distribution networks, engg. services • Reduction of inefficiency • Utilization of tax shields • Growth • Diversification • Strategic benefits • Utilization of surplus funds

  10. Valuation of target company • Equity valuation model (balance sheet valuation model) Book value, liquidation value Replacement cost • Dividend discount model V=[D1/1+k]+[D2/(1+k)2]+[D3/(1+k)3]+………… V=value of the firm D=dividend k=discount rate

  11. Constant growth dividend discount model V=Di/k-g g=growth rate of dividend • Price earning ratio PVOG=present value of growth opportunity K=discount rate • Cash flow valuation model • Economic profit model • Exchange ratio The number of shares that the acquiring firm is ready to give in exchange of the shares of the company it wishes to acquire

  12. Steps involved in valuation • Analyzing historical performance • Forecast performance • Estimating the cost of capital • Estimating the cost of equity financing • Determining the pricing model • Calculating and interpreting results

  13. The financing of acquisition • Pay cash • Issue corporate stock

  14. Finding suitable acquisition` • Candidates with no operating loss • Candidates those must avoid improper profit accumulation • Candidates with low price-earning ratio • Candidates with turnaround prospectus

  15. Approach adopted for takeover • Negotiations • Solicit tenders • Solicit proxies

  16. Resistance to an acqisition • Target firm’s management feels • acquiring firm does not understand the problem of existing firm • Resulting in harm to the interest of shareholder • Company soon going to start improving

  17. Example- • Northwest industries-Acquiring company B.F.Goodrich group-Target company • Issued letters to all shareholder recommending them to refuse from signing the proxies • Refuse to release mail list of their shareholder • Issued stock to gulf oil company in return of assets • The publicity of the fact the existing management is ready to fight

  18. International financial market

  19. Introduction • Foreign exchange market-one country’s currency is traded for another’s country • Importers • Exporters • Foreign exchange broker

  20. Sources of international finance • Commercial banks-foreign currency loans can be taken • Financial institute • Discounting of trade bills • International agencies-reconstruction and development

  21. Exchange rates • The price rate of one currency expressed in term of another OR Cost of money. • Spot rate • Exchange rate which applies to ‘on the spot’ delivery of the currency • Forward rate • Exchange rate applicable to a transaction, which will occur at a specified point of time in future • Future rate • Exchange rate which applies to the future delivery of currency

  22. Methods of exchange • The floating exchange rate • The pegged exchange rate • Hybrids

  23. The Euro • On jan 1,2002,the euro become the single currency of 12 member states of the European Union • Elimination of exchange rate fluctuation • Transaction cost • Increased trade across borders • Increased cross-border employment

  24. Factors affecting foreign exchange • Law of one price • Interest rates • The business environment • Stock market • political factor • Confidence in currency

More Related