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AG431 > Cross border mergers > Flashcards

Cross border mergers Flashcards

1
Q

What is the OLI framework ?

A

OLI stands for ownership, Location and Internasialation and was designed to help firms asses a new territiory

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2
Q

Ownership
-Asset exploiting
-Market seeking
-Asset augmenting

A

There must be a competitve advantage:
Asset exploiting - Deploying strategic assets that provide a comp advantage

Market seeking - Exploit assets in a foreign market in which they already have comparative advantages

Asset augmenting - Improve aat home operations from acquiring R&E from host country

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3
Q

Location

A

Geographical factors
Economic conditions
Regulatory environment

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4
Q

Internalization

A

-Control over operations
-Make or buy decisions
-Strategic alliencies

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5
Q

What is the role of an advisor for the bidder

A

-Identifying targets
-Valuation and fairness opinion
-Advising on payment method
-Provide negotiating tactics
-Info gathering

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6
Q

What is the role of an advisor for the target

A

-Monitors their shareprice
-Values the target
-Help prepare profits forecast

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7
Q

Does the choice of advisor impact abnormal returns ??

A

Yes - Golubov, Petmezas, Travlos 2010 found that top-tier advisors can generate higher abnormal returns

No - Sudarsanam and Salami 2001 found no difference between the quality of advisor and abnormal returns

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8
Q

What is Fair value opinion (FO)

A
  • Detailed valuation of the company
  • Offers a form of legal protection against shareholder lawsuits
  • Can enhance the quality of the transaction
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9
Q

What is a divestiture ?

A

A process by which a company sells off, spins off or otherwise disposes of parts of its business or assets, It is a form of corporate restructuring often used to refocus a company’s strategy.

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10
Q

What 2 forms of divestiture does the firm lose control of the divested business

A
  • Sell off
  • Spin off
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11
Q

What is a sell off

A

Transaction between 2 separate companies, one buys and one sells

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12
Q

What are some key characteristics of a sell off

A
  • The firm will benefit from the cash flow
  • Help mitigate financial distress
  • Eliminate negative synergies
  • Release managerial resources
  • Sharpen strategic focus
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13
Q

What is an empirical study of sell offs

A

Alexandrou and Sudarsanam 2001

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14
Q

What was the empirical findings of sell offs

A
  • Found positive returns
  • wealth experience of 877 buyers of UK divestitures
  • Buyers experienced significant buy and hold abnormal returns of 0.48% over the 3 days following the transaction
    -Larger gains when buying from financially stable buyers
    -Larger purchases create more value
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15
Q

What is a spin-off

A

The company floats off a subsidiary and creates a new company, the shares of the new companay are then spun off to shareholders

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16
Q

What are some key characteristics of Spin-offs

A
  • Parent company does not raise any cash
  • Spin offs are usually larger than sell offs
  • Increases that transparency of both firms
    -Allows firm to create more efficient capital structure
17
Q

Empirical studies of spin offs

A

Cusatis et al 1993
Dalay et al 1997
Veld and Veld Merkoulova 2009

18
Q

What was the empirical findings of spin offs

A
  • Returns are positive however they were not significant so they increased returns is not very relient on the spin off
19
Q

What is an equity carve out ?

A

The sale of a minority or majority voting control in a subsidiary by its parents to outside investors

20
Q

What are some key characteristics of equity carve outs

A

-Not complete separation from parent company
-Parent firm may continue to have mutual synergies
-The divested firm recieves cash from sale

21
Q

Empirical studies of equity carve outs

A

Schipper and smith 1986
Slovin, Shushka and Ferraro 1995

22
Q

Empirical findings for equity carve outs

A

-The parents earned significant abnormal returns
-However over the long run no significant returns were observed

23
Q

LIst the payment methods of a cross border deal

A

-Cash
-Stock exchange
-Cash underwritten loan offer
-Loan stock
-convertible loans
-Deferred payment

24
Q

Explain stock exchange as a payment method

A

Bidder offers a specific number of shares for each target share

25
Q

Explain cash underwritten loan offer as a payment method

A

Target recieves shares from bidder and then takes them to an underwriter such as an investment bank and sells them for cash

26
Q

Explain convertible loans as a payment method

A

-Bidder pays in shares that the target can turn into equity at a later date

27
Q

Explain deferred payment as a payment method

A

Part of the payment is made after a specific date, contingent on performance criteri

28
Q

What are some factors influencing payment

A

Bidders Liquidity
Recent stock performances
How much leverage is in company
Nature of acquired business

29
Q

How would bidders liquidity influence payment method

A

A companys availability of liquid assets or more so the higher liquidity would prefer cash payments

30
Q

How would recent stock performances influence payment decision

A

A strong stock price can make a stock payment more desireble to bidders

31
Q

Why might the leverage of a company influence the payment decision

A

As a company with high levels of debt might prefer to pay with cash as to avoid the financial burden that comes with paying in stocks

32
Q

Why might the nature of the business acquired influence the payment decision

A

The volatitlity and type of asset acquired

33
Q

What did martin (1996) find empirically about the method of payment

A
  • When bidders growth opportunity are high, stock offers are more preferable
    -However he does find that when managerial ownership is neither too big or too small, they tend to avoid stock payment
34
Q

What did Ghosh and Ruland (1998) find empirically about the method of payment

A

-Higher likelihood of stock offers when past revenues are high
-Higher liquidity decrease the chance of stock as payment
-Target managers with larger stock ownership prefer stock

35
Q

What did Malmendier and Tate (2008) find empirically about the method of payment

A

That overconfident managers are likely to pay with cash as to appear more stable

36
Q

What did Salami and Sudarsanam (2000) find empirically about the method of payment

A

-Cash offers are more likely when target is relatively small and bidders FCF and cash positions are high
-High stock returns enhance stock payment
-Bidders with large shareholder are less likely to pay with stock

AG431 (5 decks)

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