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Finans II > Föreläsning 14 > Flashcards

Föreläsning 14 Flashcards

1
Q

What is an acquirer?

A

Buyer of another firm

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2
Q

What is a target?

A

Firm being bought by acquirer

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3
Q

In which two ways can control of a corporation change?

A

A corporation can acquire target firm

Target firm can merge with another firm

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4
Q

På vilka två sätt kan acquirer köpa alla aktier eller tillgångar?

A

Cash eller något av liknande värde (ex. aktier i the acquiring or newly merged corporation)

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5
Q

What is a horizontla merger?

A

Target and acquirer in same industry

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6
Q

What is a vertical merger?

A

Target’s industry buys from or sells to acquirer’s industry

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7
Q

What is a conglomerate merger?

A

Target and acquirer operate in unrelated industries

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8
Q

What is a stockswap?

A

Target shareholders are swapping old stock for new stock in either the acquirer or a newly created merged firm

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9
Q

What is a cash merger?

A

Acquirer pays cash to target shareholders to acquire their shares

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10
Q

What is acquisition premium?

A

Paid by an acquirer in a takeover. Difference between the acquisition price and the pre merger price of a target firm.

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11
Q

How big has the acquisition premium been historically?

A

40 -50% over the pre-merger price of the target.

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12
Q

What is the average gain in stockprice after announcement in target?

A

15%

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13
Q

Why acquire?

A

Synergies (economies of scale, scope), efficiency gains ( can run target more efficiently), monopoly gains, tax savings, risk reduction (diversification), manegerial motives

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14
Q

What is economies of scale?

A

Savings from producing goods in high( er ) volume

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15
Q

What is economies of scope?

A

Savings that come from combining e.g. marketing and distribution of different types of related products

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16
Q

What does the following letters stand for: A, T, AT, S, NA, NT, X?

A 
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"
17
Q

Hur beräknar man synergier?

A

Synergy = AT - (A+T)

18
Q

What is the argument for monopoly gains?

A

Merging with or acquiring a major rival may enable a firm to reduce competition within the industry and thereby increase profits

19
Q

What is the argument for tax savings?

A

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)

20
Q

What is the price paid for target?

A

target’s pre bid market capitalization plus premium

21
Q

What is important from the acquirers standpoint about the price?

A

takeover is positive NPV project only if premium does not exceed synergies created

22
Q

How to calculate cash paid for target

A

Cash = T + premium

23
Q

How is NPVA calculated?

A

NPVA = synergy - premium

24
Q

How does the price of the combined firm compare to the aquirer if it is a positive NPV investment?

A

Share Price of combined firm PAT > Pre-Acquisition Share Price of acquirer (PA)

25
Q

How can this be re-written? (Share Price of combined firm PAT > Pre-Acquisition Share Price of acquirer (PA))

A

((A+T+S)/(NA+X)) > (A/NA)

26
Q

What do we get if we solve for x?

A

the maximum number of shares acquirer can offer
and still achieve a positive NPV
x < ((T+S)/A)NA

27
Q

What is the exchange ratio?

A

number of new shares per number of shares in the target

28
Q

How is the exchange ratio calculated?

A

(x/NT) < ((T+S)/A)(NA/NT)

x/NT) < (PT/PA)(1+(S/T)

29
Q

What is PT and PA?

A

Pre-acqusition price target: PT = T/NT

Pre-acqusition price acquirer: PA = A/NA

30
Q

What is needed for a merger to proceed?

A

Target and acquiring board of directors must approve deal

Vote of target shareholders

31
Q

What is a friendly take over?

A

Target’s board of directors supports a merger, negotiates with potential acquirers, and agrees on a price

32
Q

What is a hostile take over?

A

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

33
Q

What does it take for a hostile take over to succeed?

A

acquirer must go around target board and appeal directly to target shareholders

34
Q

What are some takeover defences?

A

Staggered board, supermajority provisions, restriction on the voting rights, fair price decided by board, white knight, recapitalization, posion pills

35
Q

What do we mean with synergies?

A

The value of the combined firm is larger than the value of the sum of the two individual firms

Finans II (15 decks)

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