term 2 lecture 9 corporate restructing Flashcards
what is corporate restructuring?
changes in the corporate control or ownership strucutre
what are the main forms of corporate restructuring?
mergers and acquistions, leveraged buyouts and management buyouts, leveraged recapitalisation
what is the definition of a consolidation?
both companies terminate their legal existance, and a new company arises
what is the definition of a statutor merger?
often referred to as an aquistion, one company ceases to exist. all of its assets and liabilities are taken over by the acquiring company
what is a horizontal merger?
companies are in the same line of business, often competitors such as walt disney and lucasfilms
what is a vertical merger?
companies that are in the same line of production eg supplier customer. an example is PayPal and ebay
what is a conglomerate merger?
companies that are in unrelated lines of buissness
what are the types of mergers by transaction characteristics?
what is a merger wave?
peaks of heavy activity followed by quiet troughs of few transactions in the takeover market. greatest takeover activity occurred in the 60s, 80s, 90s, 00s/
what was the type of mergers that most commonly occurred in the 60s?
1960s: known as the conglomerate wave (firms acquired others in unrelated businesses believing that managerial expertise can easily be transferred to other areas).
what was the type of merger that most commonly occurred in the 80s?
hostile takeovers, where acquired firms were subsequently broken into pieces and sold
what was the type of merger that most commonly occurred in the 90s
strategic or global deals which were likely to be friendly and in related areas. goal was to enhance global competitiveness
what was the type of merger that most commonly occurred in the 00s?
consolidation in many industries and the larger role played by private equity (large frims were taken private)
what are the three main motives for mergers?
creating value, cross border mergers and dubious mergers
what are the subreasons for creating value in mergers?
synergy, growth, increasing market power, acquiring unique capabilities or resources and unlocking hidden value
what are the subreasons for cross border mergers in merger?
exploiting market imperfections, overcoming adverse government policy, technology transfers , entering new markets and following clients
what are the subreasons for dubious motives in mergers?
diversification and mangers personal incentives
what is the historically cited reason to merge?
why is the historically cited reason to merge not the sole determining of the success of a merger?
what is a leveraegd buyout?
a group of investors or firms acquires another firm using debt financing: large part of the purchase price is financed by loans and junk bonds. the acquired firms assets are used as collateral because the only time the investors will need the money is if the tender offer succeeds, the banks lending the money can be certain that the investors will have control of the collateral.
what is a management buyout?
leveraged buyout where the acquiring group is led by the target firms management
what are the benefits to tendering shareholders from an LBO?
appreiciating prices due to bidding contest plus premium received
what are the benefits to an acquiring group: gains after the LBO?
value created by the new management, increased tax shield, reduction in agency costs and easier monitoring
reducing costs of being a public company: these costs include administrative costs inside the company as well as regulatory costs and compliances with the stock exchange requirments
what are the impact on debt holders on LBO’s?
they experience losses as their bonds are downgraded
what are the buyout costs?
cost of financial distress, managers become undiversified and may be less willing to take risks. inappropriate investment policy because of high leverage
what is the process of leveraged restructuring?
1) borrow a large amount
2) buy back own shares or pay large special cash dividend
what are the motives of leveraged recapitalisation?
reduce taxes due to tax shield effect
defence against takeover attempts (shark repellent)
what are dual class share issues?
the issue of a second class of common stock. inferior voting rights and higher dividend payments (usually exchanged for existing shares.
what are the motives of dual class share issues?
consolidation of decision making - could benefit founding families or top management
what are examples of dual class share issue?
berkshire hathaway. ford, google
what is the definition of divestitures?
selling assets, divisions , subsidaroes to another corporation or combination of corporations or inidivuals
what are the motives for divestitutres for the seller of assets?
for the seller of the asset, divestitutures allow focus on core business or to raise funds,
sale to pay back debt for example after an LBO
anti takeover defense - sell crown jewels so they are not attractive anymore
what are the motives for divestitutres for the buyer?
for the buyer of assets, it strengthens the existing business
what are the motives for divestitures by Kaplan and weisbach (1992)?
what are spinoffs?
a new independent company created by detaching part of parent companies assets. its shares are distributed to the existing shareholders of the parent company. non cash special dividends are commonly used to spin off a subsidiary as a separate company
what are the two advantages of a spin off?
they avoid the transaction costs associated with a subsidiary sale
the special dividend is not taxed as a cash distribution
how can the spin offs be represented before an after graphically?
what are equity carve outs?
also known as partial divestitures, it is when the parent company sells a percentage of the equity of a subsidiary to the public stock market. they then receive cash for the percentage sold and can sell any percentage but often up to 20% of the stock
how can equity carve outs be represented graphically?
what is privatisation?
the sale of a government owned company to private investors
what is nationalisation?
publicly owned firms are taken over by the government
