Key Rule 5

Question 1

Key rule 5

Answer 1

M&A in the real world

Question 2

Merger models are used more for

Answer 2

Supporting evidence in negotiations and M&A discussions - not as a way to make decisions in the first place

Question 3

Acquisitions gone bad, why?

Answer 3

Integration difficulties
Cultural difficulties
Poor rationale
Synergy failures
Overpaying for seller

Question 4

How can overpaying be an issue

Answer 4

In this case, goodwill and OIA balances get created, but then there are often impairment charges and write downs, as buyer reassesses what the seller was really worth

Question 5

How could market react

Answer 5

If buyer pays 100mil of stock for seller, but market believes seller is only worth 80 mil, buyers stock price will fall.

Question 6

The buyer is worth $1 billion, has 100 million shares outstanding, and its current share price is $10.00. It wants to issue 10 million shares to acquire the seller for $100 million.

But market believes seller only worth 80 million

Answer 6

Buyers rationale:
1.1billion / 110 million shares = £10 share price

Market rationale:
1.08 billion/ 110 million shares = £9.82 share price