Corporate Strategies

Question 1

List corporate actions

Answer 1

Acquisitions/ takeover

Mergers/ de mergers

Consolidations

Question 2

What is an acquisition

Answer 2

1 co purchases a target co/ wholly absorb

Purchasing co will acquire control

Target co will lose name and ownership of assets, liabilities, rights and responsibilities

Co will become a target co when SP below NAV / acquiring co believes getting a bargain and could make better use of assets

Question 3

What are mergers

Answer 3

Involve 2 co’s joining together to form one large co

Control is enlarged and shares between 2 original owners

De-Mergers involve 1 large co splitting into number of smaller co’s

Tactic to prevent hostile takeover

Question 4

What are consolidations

Answer 4

Companies combine to become new/ smaller entity

Original co’s sacrifice previous name and co has new name

Question 5

Reasons Corp actions taken

Answer 5

• expansion to benefit Co
• business rationalisation & improves growth
• cost reduction
• business diversification

Question 6

How is acquisitions financed

Answer 6

Shares in target co paid by cash or equivalent or with shares in acquiring Co or other securities

Consider if shares offered is adequate in relation to value of underlying asset (takeover using cash result In capital gains liability tax whereas other securities won’t)