1) INTRO TO M&A

Question 1

Firms seeking growth and acting in the best interest of shareholders will

Answer 1

undertake M&A and other inorganic growth strategies when they are feasible and superior to competing organic growth strategies.

Question 2

Restructuring for inorganic growth includes M&A, however,

Answer 2

a firm could downsize through divestiture to create value.

Question 3

agent problem arises when

Answer 3

one group/entity (the ‘agent’) is tasked with making decisions on behalf of another group/entity (the ‘principal’).

agent should make these decisions in a way that benefits the principal, but conflict arises as they will be motivated to act in their own best interests.

Question 4

Offer premium =

Answer 4

Bid/Unaffected Target price

Question 5

Why is offer premium calculation complicated sometimes

Answer 5

complicated by pre-bid rumours, price run-up, and bidder market timing

Question 6

How to overcome offer premium complications?

Answer 6

premium is calculated using several different definitions of unaffected target price, e.g. share price 1 and 4 weeks prior to bid, VWAP over prior week etc.

Question 7

VWAP

Answer 7

volume weighted average price
trading benchmark used by traders that gives the average price a security has traded at throughout the day, based on both volume and price. It is important because it provides traders with insight into both the trend and value of a security

Question 8

What is signalled by the a target’s share price (in a situation that would turn hostile) trending higher than the bid price?

Answer 8

the market priced in the likelihood of higher subsequent bids from the bidder or a competing bidder