Session 9-10 Flashcards
What is a merger?
2 firms are combined in a friendly “co-equal” basis
What is an acquisition?
One firm buys another
What are the 2 types of acquisitions/Takeovers?
Hostile & Friendly
What is the difference between a subsidiary merger and a statutory merger?
Subsidiary: acquired company keeps it’s identity
Statutory: acquired company is absorbed into buyer
What are the 4 different types of corporate restructuring?
Divestiture: full disclosure of one business unit
Carve-out: subsidiary becomes its own entity => shares sold to outsiders
Spin-off: new entity formed, existing shareholders get shares from it pro-rata
Split-off: same as spin off but existing shareholders get their shares of the new entity in exchange for parent shares
M&A main constituents
Shareholders
Creditors
Employees
Regulators
Union Leaders
Credit rating agencies
Politicians
Equity research analysts
Types of M&A professionals
Merger advisors (IB)
Valuation experts
Legal advisors
Accountants
Types of sell-side M&As
Targeted auction
Negotiated sale
Broad auction
Advantages and disadvantages of negotiated sales
Advantages: confidential, not disruptive, quick, doesn’t damage rep if it falls thru, only way certain buyers will participate
Disadvantage: limit competition and seller bargaining power, potential “money on the table” (buyer paid more when in comp), sensitive info shared without knowing if you’re selling fs
Advantages and disadvantages of targeted auction
Advantages: maintain confidentiality, lower disruption, lower potential for failure, market check for board to meet fiduciary duty
Disadvantages: less comp (money on table, + bargaining power buyers), exclude non-obvious buyers, less market data produced to meet fiduciary duties
Advantages and disadvantages of a broad auction
Advantages: max sale price (more comp), all likely buyers are approached (- bargaining power buyers), board satisfied that it has maxed profit for shareholders
Disadvantages: hard to keep confidentiality, business disruption, buyers may refuse participating, bad rep if it fails, competitors may participate just to get access to sensitive info
2 types of acquisition strategies
Vertical integration
Conglomeration (unrelated businesses)
(+ Horizontal integration)
