COMMERCE 3FA3 Study Guide - Midterm Guide: Netflix, Scorched Earth, Kodak
5 Jun 2018
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Patrick Bateman: Ask me a question.
Club Patron: So what do you do?
Patrick Bateman: I’m into, uh, well, murders and executions, mostly.
Club Patron: Do you like it?
Patrick Bateman: Well, it depends. Why?
Club Patron: Well, most guys I know who are in Mergers and Acquisitions really don’t like it.
Legal Forms of Acquisitions
Mergers are a complete absorption of one company by another where acquiring firm retains identity and acquired firm
ceases to exist as a separate entity
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Consolidations are mergers where new firms are created, both firms cease to exist
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Union of two similar-sized firms, often with a merged name
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Legally simple and less costly - eliminates need to transfer asset titles
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Must be approved by
share votes and cooperation of management
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Amalgamations are combinations of firms that have been joined by merger, consolidation, or acquisition.
Acquisitions of Stock
Circular bids are takeover bids communicated through direct mail
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Stock exchange bids are takeover bids communicated through the facilities of the TSX or other stock exchanges
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Purchasing firm's voting stock in exchange for cash, shares of stock, or other securities, accomplished with a tender offer, a
public offer to directly buy.
No shareholder meetings or vote must be held, though shareholders of the target firm are not required to accept and
tender their shares
1.
Bidding firm deals directly with target firm shareholders, management and BoD can be bypassed
2.
Higher cost due to unfriendly management, who are often circumvented and actively resist
3.
Minority of shareholders hold out leading to inability of absorption of company
4.
Complete absorption requires a merger, usually follows an acquisition by stock
5.
Note:
Acquisition of Assets
Requires formal vote of shareholders and has costly legal process of transferring assets
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Acquirement of company by purchasing all or most assets, at which point the target firm exists as a shell until dissolved.
Successful when duplicate expenses are eliminated and economies of scale make pricing cheaper due to volume
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Horizontal acquisition occurs between companies in the same industry - most common type
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Vertical acquisition occurs when a supplier, customer, or entity at a different step in the production process is bought
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Leads to diversification which is punished through the holding company discount
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Exists because investors can diversify on their own and its unwanted when companies do it - large ones invite
hostile takeover attempts
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Conglomerate acquisition occurs when 2 or more companies are from unrelated industries
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Types of Mergers and Acquisitions
Proxy contests are attempts to gain control of a firm by soliciting a sufficient number of shareholder votes to replace
existing management
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Going-private transactions involve the purchase of all equity shares of a public firm by a private group
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Selling shareholders paid a premium
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Value created with tax deductions on extra debt incurred and turns managers to owners incentivising efficiency
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Typically occurs to firms with stable earnings and low-moderate debt
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Leveraged buyouts are going-private transactions involving management using massive debt financing
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Takeovers
Firms can establish strategic alliances to cooperate in pursuit of joint goals, or a joint venture to create a separate, co-
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Alternatives to Merging
Mergers and Acquisitions
March 8, 2018
5:55 PM
Managerial Finance Page 1
Document Summary
Patrick bateman: i"(cid:373) i(cid:374)to, uh, well, (cid:373)u(cid:396)de(cid:396)s a(cid:374)d e(cid:454)e(cid:272)utio(cid:374)s, (cid:373)ostl(cid:455). Clu(cid:271) pat(cid:396)o(cid:374): well, (cid:373)ost gu(cid:455)s i k(cid:374)ow who a(cid:396)e i(cid:374) me(cid:396)ge(cid:396)s a(cid:374)d a(cid:272)(cid:395)uisitio(cid:374)s (cid:396)eall(cid:455) do(cid:374)"t like it. Amalgamations are combinations of firms that have been joined by merger, consolidation, or acquisition. Mergers are a complete absorption of one company by another where acquiring firm retains identity and acquired firm ceases to exist as a separate entity. Consolidations are mergers where new firms are created, both firms cease to exist. Union of two similar-sized firms, often with a merged name. Legally simple and less costly - eliminates need to transfer asset titles. Must be approved by share votes and cooperation of management. Purchasing firm"s voting stock in exchange for cash, shares of stock, or other securities, accomplished with a tender offer, a public offer to directly buy. Circular bids are takeover bids communicated through direct mail.
