Fusjoner og oppkjøp

Question 1

Gi en oversikt over momentene som gås gjennom ved M&A.

Answer 1

Overview
 Background
 Why merge/acquire ?
 Valuing an acquisition
 Who gains / looses ?

Question 2

Redegjør for bakgrunnen og historiske trender for M&A.

Answer 2

Background and Historical Trends
 Market for corporate control
 Acquirer (or bidder) – the buyer of the firm
 Target – the seller of the firm
 The global takeover market is highly active,
averaging more than $1 trillion per year in
transaction value

 Mergers typically happen in waves, e.g.

• 1960s: Conglomorates
• 1980s: Break-up (hostile takeovers)
• 1990-2008: Global industry consolidation

Question 3

Hvilke typer Mergers har vi?

Answer 3

Types of Mergers:

1. Horizontal merger
   - Target and acquirer are in the same industry
2. Vertical merger
   - Target’s industry buys from or sells to acquirer’s
   industry
3. Conglomerate merger
   - Target and acquirer in unrelated industries
4. Cash versus Stock merger
   - Paying target shareholders for their shares in
   cash or in shares of the acquiring company
   (stock swap)

Question 4

Hvilke potensielle områder kan man oppnå synergifordeler?

Answer 4

6
Potential areas of synergy benefits

1. Cost savings (elimination)
2. Revenue enhancements (sharing)
3. Process improvements (transferral)
4. Financial benefits
5. Strategic benefits

Question 5

Hva ligger i kostnadsbesparelser? Hvorfor omtales det som “hard synergies”?

Answer 5

Cost savings (“hard synergies”)

 Most common type of synergy, easiest to estimate,
and normally the least uncertain

 Common problems
– easier to eliminate positions than people
– underestimate the time needed

 What can we do without a merger ?
─ Organic growth
─ Joint Venture

 What will competitors do ?

 What is already discounted in the stock price ?

Question 6

Hva ligger i Revenue enhancements? Hvorfor omtales det som “Soft synergies”?

Answer 6

Revenue enhancements (“Soft synergies”)

 Higher combined sales
– sharing distribution channel or superior products
– gain critical mass to attract revenues neither
could realize alone

 Hard to estimate
– involve external variables beyond management’s
control (customers and competitors)

–> Often neglected, or heavily discounted in the final
assessment

Question 7

Hva ligger i prosessforbedringer?

Answer 7

Transferal of best practices and core competencies
from one company to the other

–> Cost savings and/or revenue enhancements

Question 8

Hva ligger i General Electrics ‘Six Sigma’?

Answer 8

GE’s SIX SIGMA
“Six Sigma is a highly disciplined process that helps us focus
on developing and delivering near-perfect products and
services. […] To achieve Six Sigma Quality, a process must
produce no more than 3.4 defects per million opportunities”

Question 9

Hva ligger i finansielle og strategiske fordeler?

Answer 9

10
Financial and strategic benefits

 Operational
─ pooling of working capital requirements
─ netting of currency positions
─ netting of taxable income

 Longer term
─ lower cost of debt from diversification
─ transfer of free cash flow between companies

 Strategic benefits
─ “ When someone says ‘strategic’, the rest of us say ‘too
expensive’”

Question 10

Hva er teorien bak verdsetting av et oppkjøp?

Answer 10

The Takeover Process: Valuation and Synergies

 A key issue for takeovers is quantifying and
discounting the value added as a result of the merger
– For simplicity, any additional value created will be
referred to as the takeover synergies

 The price paid for a target is equal to the target’s prebid
market capitalization plus the premium paid in the
acquisition.
– If the pre-bid market capitalization is the standalone
value of the target, then the takeover is a
positive-NPV project for the bidder, only if
the premium < the synergies

Question 11

Hva er fordelene og kostnadene til eiere ve oppkjøp? Hvordan kan det skrives matematisk?

Answer 11

 (S)ynergy = VAT - (VA
+ VT)
 (P)ayment

V_A + V_T –> V_AT.

Question 12

Hvilke divisjoner kan gi gain (S):

Answer 12

NPV_T = P - V_T
NPV_A = S - NPV_T

= V_AT - (V_A+P)

Question 13

Hvordan bys det på et selskap?

Answer 13

The Offer
• Once the acquirer has completed the valuation
process, it is in the position to make a tender offer
for the shares in the target company
– Often acquirers have to raise the price to
consummate the deal
• A bidder can use one of two methods to pay for a
target:
1. cash
2. stock

Question 14

Hva er max exchange ratio i en stock deal?

Answer 14

x = max. number of new shares offered for the
Target shares.

x <= (V_T + S)/(V_A/n_A)

Question 15

Hvordan maximum exchange ratio i en stock deal utformes som en exchange ratio?

Answer 15

Exchange ratio = x/n_T <= ((V_T + S)/n_T)/(V_A/n_A) = (p_T/p_A)*(1+S/V_T)

in terms of pre-merger Target and Acquirer share
prices pT = VT/nT and pA = VA/nA:

Question 16

Hvordan velges betalingsmetode?

Answer 16

19
Choice of payment method
 Cash versus stock:

– Synergies
– Information asymmetries
– Under/over valuation

 Tax implications (target owners):

– US: cash is taxable, securities are tax-free
(deferred taxation)
– Norway: same as US, if target is merged into
the acquiring company

Question 17

Hvilke typer mergers har preget ulike tidsperioder?

Answer 17

New Evidence and Perpectives on Mergers
Andrade, Mitchell & Stafford, J. of Ec. Perspectives; 2001

 US M&As 1973 - 98
─ 1973-79: conglomerates
─ 1980-89: unfriendly cash bids
─ 1990-98: friendly stock bids
─ Falling bid premiums

Question 18

Hvem tjener og hvem taper på en merger?

Answer 18

Target shareholders gain:

US M&As 1973 - 98

Target: All (16%), Stock (13%), Cash(20,1%)

Acquierer: All(-0,7%), Stock (-1,5%), Cash(0,4%)

Kombinert: All (1,8%), stock (0,6%), Cash (3,6%)

Why the small bidder returns ?
– Competition among bidders (undisciplined bidding?)
– Unequal size: bidder on average 8xTarget

– Acquisition value already discounted in bidder’s price
– bidders are frequent acquirers

Undervalued Target shares ?
–no: price increase typically reversed if unsuccessful bid

Question 19

Hvem er et oppkjøp bedre for?

Answer 19

Better for
– Larger acquirers (GE?)
- Cash deals
- Value acquirers (lower P/B & P/E)