Unit 3: Part 4- Mergers & Acquisition Flashcards
What does market for corporate control do?
If you see an issue in a company such as acting inefficiently, market for corporate control works to efficiently persuade other companies to maximise their value (it is a threat essentially)
What is the difference between mergers & acquisitions?
The primary difference between mergers and acquisitions is that a merger is the combining of two organisations into an entirely new entity, while an acquisition is when a company absorbs another, but no new organisation is created.
What are the different merger forms?
Merger Forms: Vertical (merger takes place within same industry, one business acquiring another that belongs to the same supply chain), Horizontal (one business acquiring another that is in direct competition with it) & Conglomerate (merger between firms that are involved in totally unrelated business activities, different industries)
What are the merger & acquisition motivations?
sensible motivations & dubious motivations
What are sensible motivations for M&A?
Economies of scale, economies of vertical integration, complementary resources, surplus funds, debt capacity, eliminating inefficiencies, industry consolidation, market or monopoly power, technology transfer & tax gains
What are dubious motivations for M&A?
diversification, bootstrapping, lower financing costs & empire building
What are managerial motives for M&A?
is the target undervalued?, bidder overvalued?, empire building/prestige?
How do organisations finance M&A’s?
pay by cash, shares or other financing options (issue of debt or combination of cash/shares/debt, or other financing)
What are cross-border M&A’s?
Cross border Mergers and Acquisitions are deals between foreign companies and domestic firms in the target country. The trend of increasing cross border M&A has accelerated with the globalisation of the world economy.
Why has scope for M&A’s increased?
rise of globalisation, better information flows, improved IT/transport & complementary resources
What is an outbound M&A?
In an outbound merger or acquisition,a domestic company purchases or merges with one in another country
What is an inbound M&A?
In an an inbound merger or acquisition is a transaction in which a foreign company merges with or acquires a domestic company
Why are event studies the preferred approach to measuring value creation?
estimate of abnormal equity returns, aims to separate company-specific events from market or industry events & window around the announcement date
What is the efficient market hypothesis?
states that asset prices reflect all available information. If the market processes new information efficiently, the reaction of market prices to new information will be instantaneous & unbiased. The EMH implies that investors cannot earn abnormal returns by using information that is already available
What is an event and an event study?
An “event” is the public announcement of an event. “Event Study” is the econometric procedure for isolating the stock price impact of the event for its impact on firm value
