Beruflich Dokumente
Kultur Dokumente
CHAPTER 25
Mergers, LBOs, Divestitures,
and Holding Companies
Types of mergers
Merger analysis
Role of investment bankers
LBOs, divestitures, and holding
companies
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Diversification
Purchase of assets at below
replacement cost
Acquire other firms to increase
size, thus making it more difficult
to be acquired
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Five Largest Completed Mergers
(as of January 2003)
VALUE
BUYER TARGET (Billion)
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Friendly merger:
The merger is supported by the
managements of both firms.
(More...)
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Hostile merger:
Target firm’s management resists
the merger.
Acquirer must go directly to the
target firm’s stockholders, try to
get 51% to tender their shares.
Often, mergers that start out
hostile end up as friendly, when
offer price is raised.
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APV Model
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Note to APV
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Note: Comparison of APV with
Corporate Valuation Model
APV discounts FCF at rsU and adds in
present value of the tax shields—the value
of the tax savings are incorporated
explicitly.
Corp. Val. Model discounts FCF at WACC,
which has a (1-T) factor to account for the
value of the tax shield.
Both models give same answer IF
carefully done. BUT it is difficult to apply
the Corp. Val. Model when WACC is
changing from year-to-year.
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= $ 20.7(1 .06)
0.1084 0.06
= $453.3 million.
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What Is the value of the Target Firm’s
operations to the Acquiring Firm? (In
Millions)
= $344.4 million.
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What is the value of the Target’s
equity?
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Shareholders’
Wealth
Acquirer Target
$11.00 $14.47
Price
Paid for
0 5 10 15 20 Target
Bargaining Range =
Synergy
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(More...)
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= $20.7(1.06 )
0.1084 0.06
= $554.1 million.
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= $409.5 million.
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(More...)
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Purchase:
The assets of the acquired firm are
“written up” to reflect purchase price if it
is greater than the net asset value.
Goodwill is often created, which appears
as an asset on the balance sheet.
Common equity account is increased to
balance assets and claims.
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Goodwill Amortization
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Identifying targets
Arranging mergers
Developing defensive tactics
Establishing a fair value
Financing mergers
Arbitrage operations
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Advantages:
Control with fractional ownership.
Isolation of risks.
Disadvantages:
Partial multiple taxation.
Ease of enforced dissolution.
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