Föreläsning 14 Flashcards
What is an acquirer?
Buyer of another firm
What is a target?
Firm being bought by acquirer
In which two ways can control of a corporation change?
A corporation can acquire target firm
Target firm can merge with another firm
På vilka två sätt kan acquirer köpa alla aktier eller tillgångar?
Cash eller något av liknande värde (ex. aktier i the acquiring or newly merged corporation)
What is a horizontla merger?
Target and acquirer in same industry
What is a vertical merger?
Target’s industry buys from or sells to acquirer’s industry
What is a conglomerate merger?
Target and acquirer operate in unrelated industries
What is a stockswap?
Target shareholders are swapping old stock for new stock in either the acquirer or a newly created merged firm
What is a cash merger?
Acquirer pays cash to target shareholders to acquire their shares
What is acquisition premium?
Paid by an acquirer in a takeover. Difference between the acquisition price and the pre merger price of a target firm.
How big has the acquisition premium been historically?
40 -50% over the pre-merger price of the target.
What is the average gain in stockprice after announcement in target?
15%
Why acquire?
Synergies (economies of scale, scope), efficiency gains ( can run target more efficiently), monopoly gains, tax savings, risk reduction (diversification), manegerial motives
What is economies of scale?
Savings from producing goods in high( er ) volume
What is economies of scope?
Savings that come from combining e.g. marketing and distribution of different types of related products
What does the following letters stand for: A, T, AT, S, NA, NT, X?
A = pre-acquisition/merger (stand alone) value of acquirer T = pre-acquisition/merger (stand alone) value of target AT = Value of combined firm S= value of synergies created by acquisition NA = Outstanding shares in A before acquisition NT = Outstanding shares in T before acquisition x = new shares issued by A to pay for target T"
Hur beräknar man synergier?
Synergy = AT - (A+T)
What is the argument for monopoly gains?
Merging with or acquiring a major rival may enable a firm to reduce competition within the industry and thereby increase profits
What is the argument for tax savings?
A firm with a profitable division and an unprofitable division will have a lower tax bill (loss in one division offsets income in the other)
What is the price paid for target?
target’s pre bid market capitalization plus premium
What is important from the acquirers standpoint about the price?
takeover is positive NPV project only if premium does not exceed synergies created
How to calculate cash paid for target
Cash = T + premium
How is NPVA calculated?
NPVA = synergy - premium
How does the price of the combined firm compare to the aquirer if it is a positive NPV investment?
Share Price of combined firm PAT > Pre-Acquisition Share Price of acquirer (PA)
How can this be re-written? (Share Price of combined firm PAT > Pre-Acquisition Share Price of acquirer (PA))
((A+T+S)/(NA+X)) > (A/NA)
What do we get if we solve for x?
the maximum number of shares acquirer can offer
and still achieve a positive NPV
x < ((T+S)/A)NA
What is the exchange ratio?
number of new shares per number of shares in the target
How is the exchange ratio calculated?
(x/NT) < ((T+S)/A)(NA/NT)
x/NT) < (PT/PA)(1+(S/T)
What is PT and PA?
Pre-acqusition price target: PT = T/NT
Pre-acqusition price acquirer: PA = A/NA
What is needed for a merger to proceed?
Target and acquiring board of directors must approve deal
Vote of target shareholders
What is a friendly take over?
Target’s board of directors supports a merger, negotiates with potential acquirers, and agrees on a price
What is a hostile take over?
Target’s board (and management) fights takeover attempt. An individual or organization purchases a large fraction of target’s stock and so gets enough votes to replace the target’s board of directors and CEO
What does it take for a hostile take over to succeed?
acquirer must go around target board and appeal directly to target shareholders
What are some takeover defences?
Staggered board, supermajority provisions, restriction on the voting rights, fair price decided by board, white knight, recapitalization, posion pills
What do we mean with synergies?
The value of the combined firm is larger than the value of the sum of the two individual firms
