3) M&A WAVES and REGULATION Flashcards
Key way political factors affect merger activity
through anti-trust regulation,
(for example, the 1960’s merger wave in the US was biased towards diversification, principally as a
result of the stringent anti-trust regime that was introduced in the 1930’s).
Antitrust laws
statutes developed by governments to protect consumers from predatory business practices and ensure fair competition.
other political factors which drive merger activity:
changes in tax and pension regulations, privatisation
programmes etc.
what’s a possible impact of economic factors on merger activity?
some investors have more positive expectation of future demand and thus value target companies higher
when there’s an economic boom, why do merger waves result?
from attempts to take advantage of differences in valuation (this is because investors usually value target companies higher)
economic factors, like ….. have provided incentives for merger activity
globalisation, shareholder activism, deregulation of
financial markets
Social and technical factors influence merger activity by
creating new markets and opportunities for
companies.
Social factors: rising income and a consumer focus on leisure activity spurred merger
activity
the travel industry.
Social factors: need to provide pensions for an ageing population created
opportunities for
for merger among financial service firms.
Information technology and advances in
media and communications resulted in
a significant number of new economy mergers.
Define merger wave
Merger
waves are periods of significantly heightened M&A activity.
Characterised by high numbers of
deals and deal values at certain times interspersed with periods of relative inactivity.
They do not occur at regularly
spaced intervals in time, and their causes are not fully understood
significance of high divestiture activity during merger waves?
signifying refocusing by companies of their business
pragmatic reasons for selling parts of business during merger wave (divestiture)
1) improved chance
that an acquirer will offer a good price for a business unit.
2) selling part of the business raises
funds that could go towards the cost of an acquisition.
3) an acquiring firm may find that for regulatory reasons it needs to divest an existing part of its business to proceed with the acquisition
Reason for divestiture (an acquiring firm may find that for regulatory reasons it needs to divest an existing part of its business to proceed with the acquisition): Where is this common?
common in tightly consolidated markets, or industries with ownership rules such as
media.
Why does ‘industry clustering’ tend to occur in merger waves?
Factors driving M&A activity in one industry may not affect other industries in the same
way.
Eg, deregulation will be a specific shock to the relevant industry. M&A
activity in an industry is then further concentrated due to ‘copy cat’ type strategies
main regulators involved in takeover bids from international companies
ASIC, ACCC, USFTC, competition regulators in other key markets due to the size of
the global activities, Australian federal government (on advice
from FIRB).
above 5% position in target firm =
position and entity must be disclosed to the market.
14.9% position in target firm =
Approval must be received from FIRB/Treasurer to increase ownership above the threshold of 15%. This threshold is only significant in acquisitions of Australian
companies by foreign entities.
19.9% position in target firm =
To increase above 20% threshold a takeover must proceed, typically through either an off-market takeover-bid or a scheme of arrangement.
24.9% position in target firm =
A position of 25% or more would give blocking rights on a competing bidder seeking
to achieve control through a scheme of arrangement
