Financial Management - Mergers and acquisitions
12 important questions on Financial Management - Mergers and acquisitions
What are the different types of mergers?
The centralization of functions such as accounting and finance are likely to produce economies of scale.
- Vertical mergers: Involves companies at different stages of production. Possibility to expand back or forward. Back = towards the source of raw materials while forward is towards the final consumer.
- Conglomerate: Companies in unrelated lines of businesses.
What are the dubious (twijfelachtige) reasons for a merger?
2. The bootstrap effect: If the acquiring firm has a high price/earning ratio and the selling firm a low P/E ration, the acquirer will have a short-term earnings per share rise. But on the long term it will have a slower EPS rise due to the share dilution.
What is a tender offer?
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How to calculate an economic gain after a merger?
How to calculate the estimated net gain after a merger?
What are 4 methods to change management?
- Firm purchased by another firm
- Leveraged buy-out by a group of investors
- Divestiture of all or part of the firm’s business units
Which tools are used to acquire a company?
- Acquisition
- Leveraged buy-out (LBO): Acquisition of the firmby a private group using substantial borrowed funds.
- Management buy-out (MBO): Acquisition of the firm by its own management in a leveraged buyout.
- Merger
-Tender offer
What are 3 types of merger tactics?
- Shark repellant: Amendments in the company charther to prevent mergers, E.G. “any merger must be approved by a supermajority of 80% of the shares”
- Poison pill: Measure taken by a target firm to avoid acquisition; for example, the right for existing shareholders to buy additional shares at an attractive price if a bidder acquires a large holding.
What are some potential value in LBO?
–Junk bond markets
–Leverage and taxes
–Other stakeholders
–Leverage and incentives
–Free cash flow
What is a spin-off?
What is a carve out?
Who benefits and who loses after a merger?
- Shareholder of the target
- Lawyers and brokers
- The executives of the acquiring firm.
Losers:
- Shareholders of the acquiring firm due to overpaying
- Executives of the targer
- All employees due to restructuring.
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