SU5 - Corporate Restructuring and Int'l Finance Flashcards
Define a merger
The acquisition of of one firm by another
Define the 4 types of mergers H V C C
Horizontal - merger within the same line of business
Vertical - merger with a customer or supplier
Congeneric - merger with a related business
Conglomerate - merger between different industries
Define an acquisition
the purchase of all of another firm’s assets or a controlling interest
-Asset purchase requires shareholder vote
Define and explain a tender offer
When a purchase offer is rejected my mgmt, an acquiring firm may offer to purchase outstanding shares at a specific price
The resulting takeover attempts can be friendly r hostile
Motiviation for M&A
Management my be notoified by the personal benefits from a larger firm or of being fired and replaced
Personal rewards/consequences may not reflect the best decision for the business/shareholders
Opposing a combination:
Greenmail
A targeted repurchase of stock
Opposing a combination:
Staggered BOD Elections
Requires new shareholders to wait several year to replace existing executives
Opposing a combination:
Golden Parachutes
Large payments to executives if they are fired
Opposing a combination:
Fair Price provisions
Allows existing shareholders to purchase add’l stock at a large discount. Protects shareholder interest
Opposing a combination:
LBOs and going private
Leveraged Buy Out: a firm is purchased with little equity (leverage = more debt)
GOing private - stock is delisted
Opposing a combination:
Poison Pill
Corporate provisions that reduce the firm’s value to potential takeover
Opposing a combinatin
Flip-Over rights
Flip-in rights
Over: rights of existing shareholder to exchange stk for a larger share of the acquiring firm
In: The purchase of a specific interest by the acquiring firm triggers add’l stock rights for existing s/h
Opposing a combination
White Knight Merger
Crown Jewel Transfer
WK: mgmt arranged alternative tender offer
CJ: the firm rids itself of desirable assets
Spin Off vs Divestirue
THey both create a new entity.
Spin-off: shares are distributed proportional to old s/h
Divestiture: through sale
Chapter 7 Bankruptcy Voluntary? Eligible? Ineligible? Priority of Claims
Liquidation
- Can be vountary or not
- Individuals, partnerships and coprorations
- municipalities, railroads, insurerrs banks and credit unions
- admin expenses, suppliers after case b4 trustee, wages, emp benefit plans…… general creditors, shareholders
Chapter 11 Bankruptcy
Voluntary
eligible
ineligible
Reorganization
- yes or no
- same as ch. 7 and railroads
Claims are divided into classes and treated equally
How many exchange reate systems are there? Name them
4 Fixed Rates Freely floating rates managed floating rates pegged rates
Fixed Exchange Rate System
Fixed exactly or within a limited range
Eliminates uncertaintity
Susceptible to gov’t manupulation
Freely Floating Exchange Rate System
No intervention
Leaves countries wholly dependent on the economic conditions of other nations
Self Correcting
Managed Float Exchange Rate System
Controlled by market forces within a wide range
Used by most trading nations
A mix of fixed and free float
Export nations are vulnerable to sudden changes
Pegged Exchange Rate System
Rate is fixed to another currency or group of currencies
Spot Rate
Today’s Exchange rate
Forward Rate
Forward Premium
Future exchange rate
domestic currency buys more of a foreign currency in the forward market
Calculating a forward premium/discount
Effect on purchasing power
((Forward Rate - Spot Rate)/Spot Rate) x (Days in Year/Days in Fwd Pd)
Forward premium - gain purchasing power
Discount - lose purchasing power
