Beruflich Dokumente
Kultur Dokumente
McGraw-Hill/Irwin
Chapter Outline
The Legal Forms of Acquisitions Taxes and Acquisitions Accounting for Acquisitions Gains from Acquisition Some Financial Side Effects of Acquisitions The Cost of an Acquisition Defensive Tactics Some Evidence on Acquisitions: Does M&A Pay? Divestitures and Restructurings
25-2
Consolidation
Entirely new firm is created from combination of existing firms
25-3
Acquisitions
A firm can be acquired by another firm or individual(s) purchasing voting shares of the firms stock Tender offer public offer to buy shares Stock acquisition
No stockholder vote required Can deal directly with stockholders, even if management is unfriendly May be delayed if some target shareholders hold out for more money complete absorption requires a merger
Classifications
Horizontal both firms are in the same industry Vertical firms are in different stages of the production process Conglomerate firms are unrelated
25-4
Takeovers
Control of a firm transfers from one group to another Possible forms
Acquisition
Merger or consolidation Acquisition of stock Acquisition of assets
Taxes
Tax-free acquisition
Business purpose; not solely to avoid taxes Continuity of equity interest stockholders of target firm must be able to maintain an equity interest in the combined firm Generally, stock for stock acquisition
Taxable acquisition
Firm purchased with cash Capital gains taxes stockholders of target may require a higher price to cover the taxes Assets are revalued affects depreciation expense
25-6
Synergy
The whole is worth more than the sum of the parts Some mergers create synergies because the firm can either cut costs or use the combined assets more effectively This is generally a good reason for a merger Examine whether the synergies create enough benefit to justify the cost
25-8
Revenue Enhancement
Marketing gains
Advertising Distribution network Product mix
25-9
Cost Reductions
Economies of scale
Ability to produce larger quantities while reducing the average per unit cost Most common in industries that have high fixed costs
Complimentary resources
25-10
Taxes
Take advantages of net operating losses
Carry-backs and carry-forwards Merger may be prevented if the IRS believes the sole purpose is to avoid taxes
Asset write-ups
25-11
General Rules
Do not rely on book values alone the market provides information about the true worth of assets Estimate only incremental cash flows Use an appropriate discount rate Consider transaction costs these can add up quickly and become a substantial cash outflow
25-13
EPS Growth
Mergers may create the appearance of growth in earnings per share If there are no synergies or other benefits to the merger, then the growth in EPS is just an artifact of a larger firm and is not true growth In this case, the P/E ratio should fall because the combined market value should not change There is no free lunch 25-14
Diversification
Diversification, in and of itself, is not a good reason for a merger Stockholders can normally diversify their own portfolio cheaper than a firm can diversify by acquisition Stockholder wealth may actually decrease after the merger because the reduction in risk in effect transfers wealth from the stockholders to the bondholders
25-15
Cash Acquisition
The NPV of a cash acquisition is
NPV = VB* cash cost
Often, the entire NPV goes to the target firm Remember that a zero-NPV investment is also desirable
25-16
Stock Acquisition
Value of combined firm Cost of acquisition
VAB = VA + VB + V
Depends on the number of shares given to the target stockholders Depends on the price of the combined firms stock after the merger
Defensive Tactics
Corporate charter
Establishes conditions that allow for a takeover Supermajority voting requirement
Targeted repurchase aka greenmail Standstill agreements Poison pills (share rights plans) Leveraged buyouts
25-18
Evidence on Acquisitions
Shareholders of target companies tend to earn excess returns in a merger
Shareholders of target companies gain more in a tender offer than in a straight merger Target firm managers have a tendency to oppose mergers, thus driving up the tender price
Shareholders of bidding firms earn a small excess return in a tender offer, but none in a straight merger
Anticipated gains from mergers may not be achieved Bidding firms are generally larger, so it takes a larger dollar gain to get the same percentage gain Management may not be acting in stockholders best interest Takeover market may be competitive Announcement may not contain new information about the bidding firm
25-20
Quick Quiz
What are the different methods for achieving a takeover? How do we account for acquisitions? What are some of the reasons cited for mergers? Which may be in stockholders best interest and which generally are not? What are some of the defensive tactics that firms use to thwart takeovers? How can a firm restructure itself? How do these methods differ in terms of ownership?
25-22
Chapter 25
End of Chapter
McGraw-Hill/Irwin