Lecture 9: Merger and Acquisitions; International Finance Flashcards
What is a acquisition?
is the purchase of one firm by another
What is a merger?
the merging of 2 equal firms
What is an amalgamation?
a genuine merger that both firms approve of
What ratio/ % allows for companies to approve of a resolution?
2/3 or 66.7%
When involved in a acquisition, do the shareholders of the acquiring company have to approve?
No, shareholders of the target company do
What is a cash transaction?
when the acquirer bears all the risk
What is a share transaction?
when the acquirer offers shares or shares+cash to the target company
What is a “going private” transaction or issuer bid?
when the acquirer during an acquisition already owns majority of the stake
What is the side effect to FTA
The US bough out the Canadian minority shareholders removing obstacles to becoming integrated
What is a Fairness Option?
and option provided by an expert regarding the true value of a firm’s shares
When can authorities reject takeovers?
- if there is a national security concern
- If the industry is critical to the country
- If the amalgamation of the businesses eliminates competition
What is the percentage of the Early Warning and what does it do?
10%
requires a report be sent to OSC to notify the company about who owns the shares
What is the necessary percentage to be called a “takeover bid” and what is being done here?
20%
he or she is not allowed to buy more shares in open-market without a takeover bid
What percentage is necessary to claim control over a company?
- 1%
- can change membership of BOD
- controls voting decision
What percentage is amalgamation?
66.7%
What percentage can you participate in the minority “squeeze out”?
90%
This is where you can force minority shareholders to sell shares
What is a toehold?
When you acquire 10-20% of target shares to get shares at market price
What is the process of a takeover bid?
- take over circle must be send to shareholders
- Target has 15 days to circulate it as an acceptance or rejection
- Bid has to be open for 35 days
- shareholder and lender have to sign the authorization
- Overlap of 15 days
What is a Coercive Takeover bid?
acquirer offers once price for the shares to get control, then lowers it after it gets control
What is the 5% Rule?
no tender is required is no more then 5% of outstanding shares have been purchased
What is a Creeping Takeover?
a company acquires a target over a long time of accumulating shares
What is a friendly takeover?
when the target is willing to be taken over
What steps are involved in a friendly takeover?
- Offering a memorandum - bank consultation
- Data Room- sign a release of confidentiality
- Due diligence- evaluate a target company and sign a letter of intent
What is a Non-stop Clause?
a clause saying the target will NOT look for another buyer
What is a Break Free?
a fee that is paid by either side if one backs out worth 2.5 of the value
What is a hostile takeover?
When the firm does not want to be taken over but the acquirer has a 20% toehold
What are arbs?
specialists that predict what happens in takeovers
What are the 3 defence tactics during hostile takeovers?
- Shareholder Rights Plan/Poison pill
- Selling the Crown Jewel
- While Knight
What does the shareholder rights plan do?
it is a plan by target company to allow sharehoder to buy 50% more shares at a discount
What does the selling the crown jewel do?
the target sells everything that appeals to the acquirer
What does the White Knight do?
someone comes in and rescues the company with a counter bid
What is a horizontal merger?
a merger between 2 companies in the same industry
What is a vertical merger?
a merger where 1 firm acquires a supplier (backward) and another firm is closer to the customers (going forward)
What is a condomerate merger?
a merger between been 2 firms that are unrelated
What is a cross-border M&A?
a merger where both a Canadian and foreign firm are the target
What is unrelated diversification?
capitalizing on businesses that have very good financial performance
-> unvalued assets, financial distress, high growth potential
What is synergy?
the amount by which one firm excess the value of two individual ones
What are the 3 ways of operating synergies?
- Economies of Scale
- Economies of Scope
- Complementary Strengths
What are the parts of economies of scale?
- Reducing capacity - overcapacity of workers
- Spreading Fixed Costs- increase firm size
- Geographic synergies- creating a national firm from regional ones “rollup”
What is economies of scope?
the combo of 2 reduced costs - 2 products share production process
What is efficiency increase?
when one firm has X/S capacity and can result in job loss
What are the benefits of financing synergy?
- reduced cash flow- decrease external financing
- increase in debt capacity- increase with size
- Reduction in average issuing costs
- Fewer info problems - media exposure
What are tax benefits?
make better use of tax deduction and credits
-> you cannot use credit if you do not use product
Strategic Realignment
new strategies that were not feasible before the acquisition
What are managerial motivations for M&A?
- increased firm size
2. Reduced Firm Risk through diversification
What is globalization?
removal to free trade and integration of national economies
What is a multination corporation?
a business firm that operates in 1+ countries and the headquarter is in the home country
i love sav
What is Transnational Corporation?
managed from a global perspective making them controversial due to their zero alliance
What are the 6 factors that affect International Business?
- Exchange Rates
- Language
- Culture
- Legal Systems
- Economic Systems
- Differences in country risk
What are the two economic systems?
- Centrally planned economics: resources are allocated under a central government
- Market Economies: resources are dealt with by market forces
What are the goals of international stock market Western stockholder?
generate the most money for stockholders
What are the goals of international stock market for Europe?
increase corporate wealth
What are the international stock market goals of Japan?
increase wealth and growth of group (Keiretsu)
What are foreign exchange markets
international markets internets where currencies are sold at wholesale
what factors affect currency rates?
- supply and demand
- relative inflation rates
- interest rates
- political and economic risk
What are the benefits of foreign market?
- you can transfer purchasing power between 2 currencies
- pass risk of price inflation
- channel for imports and exporters
Who participates in foreign markets?
multinational commercial banks
large investment firms
small currency boutiques
central banks
What is spot rate?
a rate that one agrees to buy or sell a currency TODAY
What is a forward rate?
rate that one agrees to buy or sell at a future date
What is a currency rate change?
value of 1 currency relative to another
What is direct quotation method?
how much of a home country’s currency is needed to purchase a foreign currency
What is indirect quotation?
how much of a foreign currency is needed to purchases a home country currency
