lecture 7&8 (1)

Question 1

Acquisition:

Answer 1

one company buys all assets or shares of another company (contract)

Question 2

Merger

Answer 2

absorption: merging into another company (legal)

triangular: merging into an acquisition vehicle (legal=

Question 3

Deal rationale

Answer 3

acquisition price > standalone going concern value

Acquisition returns > cost of capital

post acquisition value = preacquisition value + synergy gain

Question 4

Deal rationale

Answer 4

operating synergies (economies of scale and scope)

Financial synergy

Diversification

Technology

growth

Market power

Question 5

Asset purchase advantages and disadvantages

Answer 5

advantages: tax treatment, allows for cherry picking, excluding liability

disadvantages: consent of counter-party BoD required, possibly high transaction costs and trasfer of ownership in contractual assets

Question 6

stock purchase advantages and disadvantages

Answer 6

Advantages:
Simple compared to asset purchase

Transactional savings

Disadvantages: No cherry picking
additional management cost of owning a subsidiary
Contractual clauses (change of control)

Question 7

Who decides acquisitions and mergers

Answer 7

shareholders:
In case of stock sale: approval of target shareholders

In case of merger: approval of target and acquirer shareholders

In case of asset sale: approval of target shareholders (major transaction)

Approval generally not required when:
no substantial transaction, merger of a parent and subsidiary (high concentration of ownership)

Boards: mergers and asset sale

Question 8

Acquisitions two types

Answer 8

1) friendly takeover
2) hostile takeover (tender offer, proxy fight)

hence: external governane mechanism

Question 9

Defensive measures and response to takeover

Answer 9

white knight, pac man, golden parachute, selling crown jewels, the poison pill

Question 10

MBR - mandatory bid rule

Answer 10

1) where a naturla or legal person, as a result of his/her own acquisition or the acquisition by persons acting in concert with him/her, holds securities of a company … directly or indirectly give him/her a specified percentage of voting rights in that company, giving him/her control of that company, member states shall ensure that such a person is required to make a bid as a means of protecting the minority shareholders of that company. Such a bid shall be addressed at the earliest opportunity to all the holders of those securities for all their holdings are the equitable price

3) The percentage of voting rights which confers control fro the purposes of paragraph 1 and the method of its calculation shall be determined by the rules of the member state in which the company has its registered office

Question 11

squeeze and sellout rules (not in the US)

Answer 11

squeeze out rule when 90 percent of the voting rights member states may set higher threshold up to 95 percent

article 16: sell-out rule when 90 percent of the voting rights, member states may set higher threshold up to 95 percent