Corporate Governace Flashcards
What is the difference in the target stock price reaction ( from the announcement of an M&A) between the USA and Canada, and what does that entail?
USA: increases 30% immediately after the announcement
CA: increases 30% in a gradual manner ( over weeks )
means that in the USA there is more insider information between exchanged
What is takeover premium
the 30% increase in target firm stock price after a takeover is announced
Why do a Target Firm’s shares rise on a Hostile Takeover
Shareholder expects better corporate governance, which translates into more NPV > 0 projects being approved and higher future returns
Why does M&A happen in waves
When the economy is booming, the share price value increases ( overvalued ). According to Gresham’s Law, companies want to spend “bad money” as quickly as possible and save good money. Doing an M&A with stocks is the most effective way to do so.
GreenMail or Targeted stock repurchase
The Target firms offer to pay a premium for its stocks that the bidder has bought
Poison Pill defense or shareholder’s rights
test
What is the Gresham Law’s
“bad money drives out good.”
What accounts for 50% of M&A: internalization theory of synergy.
sharing tecnology and inovation
Hard to sell a patent because the firm does not know what it is
What are examples of M&A that destroy company value
1) Using shares to do M&A
2) Free Cashflow problems ( i.e. Agency problem )
3) Winner’s curse
4) Zombie firms, non-growing industry
5) Low Q firms taking over high Q firms
6) CEO ego, Hubris and Attribution Bias
7) Financially Illiterate CEO’s
What is Winners Curse
see
What are the 2 Shark Defenses
1) Scattered board ( can only change the 1/3 of
White Knight
see
White Squire
see
Public Interest Defense
Anti-Trust
Public Interest Defense for companies that is not in the same industry
the company a: oil company bidder
company b: plains target
buy a very small oil firm
company b goes
