class 3 powerpoint Flashcards
effect of acquisitions on the demand of management?
While acquisitions bring potential synergistic gains, they also entail accrued demand on management
disadvantage of A cross-border acquisition
physical distances could put additional strain to management
who tends to benefit from higher stock returns following the announcement of the acquisition of Canadian targets between Canadian acquirers and US firms?
Canadian acquirers
effect of currency rates on M&A deals
If the home currency of a bidder is relatively stronger that the local currency of the target, she could afford a higher premium and the target could be less prone to pass it up
Countries whose currencies appreciate are more or less prone to have acquirers?
more
countries whose currencies depreciate tend to have targets or acquirers?
targets
Sources of revenue-enhancing synergies
Pricing power
Combination of functional strengths
Growth from faster-growth markets or new markets
Pricing power
a combination of two firms which leads to a more oligopolistic market structure could lead to positive synergies
Combination of functional strengths
a combination of two firms, each of which is strong in a distinct functional area
Growth from faster-growth markets or new markets
firms may enter a fast-growing market
Economies of scale
decreases in per-unit costs that stem from an increase in size or scale of a firm’s operations
Spreading overhead
takes place when the per-unit costs decline as the output levels rise
Economies of scope
stand for the ability of to utilize one set of inputs so as to provide a broader array of products and services
Countervailing power
the gain of bargaining power following a horizontal merger vis-à-vis concentrated supplier industries
The debt-coinsurance effect
occurs when the earnings of the well-performing firm offset the losses of the combined firm so as to avoid bankruptcy
benefits accrue to bondholders at the expense of shareholders
Larger banks may be too-big-to-fail, and hence they could be entitled to bailouts
Following acquisitions, financial economies of scale could occur in the form what?
lower flotation and transaction costs
An internal capital market
takes place when larger firms provide targets access to external financing
which companies have better credit quality and better access to capital markets? diversified or undiversified?
Diversified companies
In the US, financial reporting combines the assets of acquirer with those of the target
how does it differ from European firms
Europan firms are required to disclose financial data on an unconsolidated basis
Types of Focus Hypothesis
Increased corporate focus is in tandem with the shareholder wealth maximization
One important benefit of diversification is that diversified firms regarding hostile takeovers
diversified firms are less prone to be targets of hostile takeovers
Spin-offs that increase industrial focus compared to those that increase geographical focus
Spin-offs that increase industrial focus engender positive shareholder wealth effects
those that increase geographical focus have no effect
NAV (Net Asset Value) formula
NAV = (VAB - (VA + VB)) - (P + E)
NAV: Net acquisition value
VA: the Value of A (acquirer)
VB: The value of B (target)
P: Premium paid for B
E: Expenses of the acquisition process
