Lecture 18 - Mergers and Acquisitions

Question 1

Examples of big M and A

Answer 1

Bayer and Monsanto
Disney and 21st century fox

Question 2

Difference between merger and acquisition

Answer 2

Merger - Combination of two companies into one company

Acquisition - Purchase of one company by another

Question 3

Acquiring firm vs target firm

Answer 3

Acquiring firm - The buyer

Target firm - The company to be bought

Question 4

Take-over premium

Answer 4

Difference between the share price before the offer and the offer price

Question 5

4 Sources of takeover benefits

Answer 5

Taxes
Operating synergies
Target incentive problems
Financial synergies

Question 6

Synergy/ Synergy benefits

Answer 6

Synergy - Where combining two separate units creates value

Synergy benefits - Generated when the value of the combination is greater than the sum of the two separate units

Question 7

3 types of mergers and acquisitions

Answer 7

Strategic acquisitions
Financial acquisitions
Conglomerate acquistions

Question 8

Strategic acqusition

Answer 8

Primary motivation - Operating synergies
Hostile or friendly - Freindly
Trend - Increasing importance

Question 9

Financial synergies

Answer 9

Primary motivation - Taxes, incentives improvements
Hostile or friendly - Hostile
Trend - Phenomenen of 1980s

Question 10

Conglomerate acquisition

Answer 10

Primary motivation - Financial synergies, taxes and incentives
Hostile or friendly - Both
Trend - 1960s and 70s

Question 11

A conglomerate

Answer 11

A combination of two or more corporations engaged in entirely different business

A multi industry company

Question 12

Advantages of conglomerates

Answer 12

Enhances flexibility
Avoids some information problems
Increases debt capacity
Proprietory information more difficulty to find

Question 13

Disadvantages of conglomerates

Answer 13

Conglomerates misallocate capital
Reduce information content of stock prices

Question 14

3 Basic forms of acquisition

Answer 14

Merger or consolidation
Acquisition of shares
Acquisition of assets

Question 15

NPV of an acquisition

Answer 15

Market value of target firm plus synergy benefits minus the cost

Question 16

4 common agreements in ma and a activities

Answer 16

Golden parachute
Poison pill
Greenmail
Whiteknight

Question 17

Golden parachute and example

Answer 17

An agreement between a company and employees specifying that the employee will receive certain benefits if employment is terminated

Verizon buying yahoo, Yahoo ceo gets 54 million if fired

Question 18

Poison Pill and example

Answer 18

A tactic used by the company to avoid unwelcome takeover offering discounted shares to existing shareholders to increase value of acquisition

Sotheby’s put poison pill to prevent activist investor

Question 19

Greenmail and example

Answer 19

Practice of buying a voting stale in a company and force the target company to buy back the stale at a premium

Goldsmith purchasing a stake for 42 dollars, then selling back to Greenfield for 49.50 a share

Question 20

Whiteknight and example

Answer 20

A friendly investor acquire a company at a fair value with the support from the target company’s board of directors

ITV bidding for entertainment one