Mergers and Acquisitions

Question 1

Motivation for acquisition

Answer 1

increase power and prestige of managers, create new economic value for shareholders

Question 2

acquisition pricing

Answer 2

• acquirer must avoid over-paying for the target

- analyst can compare premium offered to premiums from previous offers/similar transactions

Question 3

Form of payment

Answer 3

• even if acquisition is well priced to add value it might still have a negative impact
• use surplus cash, cash generated from a new debt issue, issue new share

Question 4

Acquisition outcome

Answer 4

A well-motivated, well priced acquisition can still fail because the target receives a higher bid/regulatory obstacles