Mergers & Acquisitions Flashcards
def merger
= absorption of assets or liabilities of another firm
def acquistion
= larger corporation purchases assets or stock of a smaller corporation –> control
state 3 types of mergers
- vertical
- horizontal
- conglomerate
def vertical merger. what is the most important reason for this type?
two companies who work in the same industry, but in the different parts of the supply chain
most important reason: cost efficiency
when does horizontal merger happen? what is the main reason for this kind?
mostly happens amongst competitors within the same geographical market (and the same industry)
reason for merger: economies of scale, increased sales, knowledge spillover
def target
the corporation being purchased, when there is a clear buyer and seller
def bidder
The corporation that makes the purchase, when there is a clear buyer and seller. Also known as the acquiring firm
def friendly m&a
The transaction takes place with the approval of each firm’s management
def hostile m&a
The transaction is not approved by the management of the target firm
def conglomerate merger
any merger that is not horizontal or vertical; in general, it is the combination of firms in different industries or firms operating in different geographic areas
state 4 disadvantages of conglomerate mergers
- no past experience
- shift in focus
- complications
- governance issues
state 4 disadvantages of conglomerate mergers
- no past experience
- shift in focus
- complications
- governance issues
state 9 motives for mergers
- synergies
- unique capabilities
- diversification of operations
- adding hidden value (intangibles)
- rapid growth (external)
- market power
- bootstrapping EPS (=increasing earnings per share)
- personal incentives of managers
- tax issues (less taxable income)
which motives for mergers are positive? (6)
- efficient use of resources
- cost savings
- better management
- technology transfer (spillover)
- more options for strategic objectives
- additional revenue generation
which motives for mergers are negatives? (5)
- tax advantages
- increased market power (near-monopoly)
- using up free cash flow
- overconfidence
- generation of fees for corporate lawyers
state 5 strategies against unwanted mergers and define them
- pac man (counter bid the predator)
- white knight (arrange another bid from a friendly company)
- poison pill (make bid costly)
- poison put (bondholders of target can demand immediate repayment in full if there is a change in ownership)
- crown jewels (sell off bits the predator is most interested in)
def golden parachute
a defence tactics to prevent unwanted mergers. key executives get contract provisions that gets them a giant bonus in the case they are fired (so the merger would be too expensive to be bought)
def shark repellent tactics
defence tactics to prevent unwanted mergers
def poison pill
defense tactic. shareholders get rights to buy more shares at a discount in case of a merger
def greenmail
the process in which a buyer acquires a large # of company’s shares and threatens a company takeover. it is not initiated tho, but it forces the company to buy back their own shares at premium
state the 5 key determinants of a successful merger.
- compatibility of mission and direction
- beneficial economies of scale
- cultural harmonisation
- geographically close headquarters
- possibility of growth (new markets etc.)
