Mergers And Acquisitions Flashcards

Question

Mechanics of a merger | Step 4

Answer 1

The offer Friendly merger Target board advises shareholders to accept Hostile bids - dawn raids - bidding company buy all available shares on the open market -3% rule = amassed shares they must tell target company = disclosure rule - 30% rule = Rules mean they are hostile or friendly Unconditional offer when usually 50% has been acquired 90% rule = agreement and force rest to sell their shares

Answer 2

Bidding shareholders control is not diluted Price being offered is clear to see Target shareholders have more options and can spend on what they want But targets shareholders are subject to capital gain tax which is on profit amassed

Answer 3

Share for share exchange Become shareholders in a new combined group Target shareholders = benefit is capital gains taxes is postponed and they benefit from merger gains and will enjoy higher share price. Target shareholders = disadvantages = no immediate cash flow. Bidder company = no immediate cash outflow = benefit Disadvantage = arguably it is the most expensive form of capital and they shall suffer a dilution of control

Answer 4

Are reactively new. Becoming more popular where part of payment of merger is paid on completion and part is paid at the end of the earn-out period. Amount paid at the end is based on profits earned since acquisition which is variable. An issue is earn out agreement has to be very clear, and the speed of the integration, and when the integration happens in the first two years - performance will be alright but after five years profit will go really high or really low.

Answer 5

E.g bank loans, convertible bonds and its usually combination of sources of finance are used e.g cash and equity. Very common for company to do a rights issue when trying to finance a merger.

Answer 6

UK listing Authority (UKLA) Authority rules exist when bidding company is part of the London stock exchange. City code/ Blue Book Code of best practice, companies are treated fairly by their directors and its informal and has no legal backing. Companies will genuinely adhere to the guidelines because they don't want to be shunned in the market and in practice. Other companies do not look favourably on them. The office of fair trading OFT = review all potential mergers to make sure there is not a lessening of competition. Sainsbury's merger could only continue if they agreed to sell off so many stores cause they would control too much of the market. European Commission = overall say on all merger transactions, go against the European common market they can block it.

Answer 7

If cash is offered, the cost of the merger is unaffected by the merger gains. If shares are offered, then cost depends on the gains being made.= share for share issue.

Answer 8

Action that a target company can take if they don't want to be taken over. Board has to feel that takeover is in the company best interests.

Answer 9

Directors will try to build up shareholder loyalty. By highlighting the strengths of the company in the media. E.g a debt issue in order to increase share price which may put bidding company off

Answer 10

Announce to market that they expect future profit to be higher. Which increases share price and makes it more expensive to acquire. Forecast has to be credible though and there needs to be some substance

Answer 11

Find a defensive merger Where they choose a more appropriate company but directors may be acting in their own best interests e.g losing their jobs. Shareholders need to be aware of the reasons behind.

Answer 12

Target company may do a rights issue meaning there are more shares in the market and more shares to be acquired. This may increase the value of the company = expensive for bidding company. Also they can issue a convertible bond = instrument that starts off as debt but can be transferred to equity. Meaning there are more shares for the bidding company to acquire and may find it too expensive.

Answer 13

Might sell of parts or asset that the bidding company wants which decreases the attractiveness of the merger for the buffing company. But future becomes uncertain, selling off the Crown Jewels is prohibited in the blue book.

Answer 14

In a very rare instance Target company is subject to a takeover = target company then does a reverse bids on the bidding company. But the target company is usually poor performing

Answer 15

Large termination payments or packages | Receiving directors will receive a higher package.

Answer 16

Proposed by the French government Companies give employees shares Do what they're told

Answer 17

Key shareholders are bribed in the USA by shareholders to sell back - repurchasing shares at a massive premium

Answer 18

Institutional shareholders | Repurchase shares from shareholders and target company therefore own the shares

Answer 19

Defence strategy | Pensions fund deficit = far too expensive for Phillip green to acquire

Answer 20

May benefit from cost savings | May lose out from abuse of monopoly power

Answer 21

At best, the effect is neutral Evidence is mixed Benefit from cost savings Or lose out from overpaying

Answer 22

Seem to gain due to high premium paid by predator

Answer 23

Employees Directors Financial institutions Becoming stronger might actually create job positions Two angles lose out if they lose jobs but receive substantial termination package Biding company director tends to benefit cause they are in control of bigger empire and ego boost

Answer 24

Acquired for the wrong reason - primarily a conglomerate merge - is the merger compatible with overall business strategy Overestimating gains/ underestimating costs - forecasts are sometimes too optimistic - underestimating management time Merge fever Badly planned integration In practice it didn't work. Because of poor integration plan.