Lecture 9: Merger and Acquisitions; International Finance

Question 1

What is a acquisition?

Answer 1

is the purchase of one firm by another

Question 2

What is a merger?

Answer 2

the merging of 2 equal firms

Question 3

What is an amalgamation?

Answer 3

a genuine merger that both firms approve of

Question 4

What ratio/ % allows for companies to approve of a resolution?

Answer 4

2/3 or 66.7%

Question 5

When involved in a acquisition, do the shareholders of the acquiring company have to approve?

Answer 5

No, shareholders of the target company do

Question 6

What is a cash transaction?

Answer 6

when the acquirer bears all the risk

Question 7

What is a share transaction?

Answer 7

when the acquirer offers shares or shares+cash to the target company

Question 8

What is a “going private” transaction or issuer bid?

Answer 8

when the acquirer during an acquisition already owns majority of the stake

Question 9

What is the side effect to FTA

Answer 9

The US bough out the Canadian minority shareholders removing obstacles to becoming integrated

Question 10

What is a Fairness Option?

Answer 10

and option provided by an expert regarding the true value of a firm’s shares

Question 11

When can authorities reject takeovers?

Answer 11

1. if there is a national security concern
2. If the industry is critical to the country
3. If the amalgamation of the businesses eliminates competition

Question 12

What is the percentage of the Early Warning and what does it do?

Answer 12

10%

requires a report be sent to OSC to notify the company about who owns the shares

Question 13

What is the necessary percentage to be called a “takeover bid” and what is being done here?

Answer 13

20%

he or she is not allowed to buy more shares in open-market without a takeover bid

Question 14

What percentage is necessary to claim control over a company?

Answer 14

50. 1%
    - can change membership of BOD
    - controls voting decision

Question 15

What percentage is amalgamation?

Answer 15

66.7%

Question 16

What percentage can you participate in the minority “squeeze out”?

Answer 16

90%

This is where you can force minority shareholders to sell shares

Question 17

What is a toehold?

Answer 17

When you acquire 10-20% of target shares to get shares at market price

Question 18

What is the process of a takeover bid?

Answer 18

1. take over circle must be send to shareholders
2. Target has 15 days to circulate it as an acceptance or rejection
3. Bid has to be open for 35 days
4. shareholder and lender have to sign the authorization
5. Overlap of 15 days

Question 19

What is a Coercive Takeover bid?

Answer 19

acquirer offers once price for the shares to get control, then lowers it after it gets control

Question 20

What is the 5% Rule?

Answer 20

no tender is required is no more then 5% of outstanding shares have been purchased

Question 21

What is a Creeping Takeover?

Answer 21

a company acquires a target over a long time of accumulating shares

Question 22

What is a friendly takeover?

Answer 22

when the target is willing to be taken over

Question 23

What steps are involved in a friendly takeover?

Answer 23

1. Offering a memorandum - bank consultation
2. Data Room- sign a release of confidentiality
3. Due diligence- evaluate a target company and sign a letter of intent

Question 24

What is a Non-stop Clause?

Answer 24

a clause saying the target will NOT look for another buyer

Question 25

What is a Break Free?

Answer 25

a fee that is paid by either side if one backs out worth 2.5 of the value

Question 26

What is a hostile takeover?

Answer 26

When the firm does not want to be taken over but the acquirer has a 20% toehold

Question 27

What are arbs?

Answer 27

specialists that predict what happens in takeovers

Question 28

What are the 3 defence tactics during hostile takeovers?

Answer 28

1. Shareholder Rights Plan/Poison pill 2. Selling the Crown Jewel 3. While Knight

Question 29

What does the shareholder rights plan do?

Answer 29

it is a plan by target company to allow sharehoder to buy 50% more shares at a discount

Question 30

What does the selling the crown jewel do?

Answer 30

the target sells everything that appeals to the acquirer

Question 31

What does the White Knight do?

Answer 31

someone comes in and rescues the company with a counter bid

Question 32

What is a horizontal merger?

Answer 32

a merger between 2 companies in the same industry

Question 33

What is a vertical merger?

Answer 33

a merger where 1 firm acquires a supplier (backward) and another firm is closer to the customers (going forward)

Question 34

What is a condomerate merger?

Answer 34

a merger between been 2 firms that are unrelated

Question 35

What is a cross-border M&A?

Answer 35

a merger where both a Canadian and foreign firm are the target

Question 36

What is unrelated diversification?

Answer 36

capitalizing on businesses that have very good financial performance -> unvalued assets, financial distress, high growth potential

Question 37

What is synergy?

Answer 37

the amount by which one firm excess the value of two individual ones

Question 38

What are the 3 ways of operating synergies?

Answer 38

1. Economies of Scale 2. Economies of Scope 3. Complementary Strengths

Question 39

What are the parts of economies of scale?

Answer 39

1. Reducing capacity - overcapacity of workers 2. Spreading Fixed Costs- increase firm size 3. Geographic synergies- creating a national firm from regional ones "rollup"

Question 40

What is economies of scope?

Answer 40

the combo of 2 reduced costs - 2 products share production process

Question 41

What is efficiency increase?

Answer 41

when one firm has X/S capacity and can result in job loss

Question 42

What are the benefits of financing synergy?

Answer 42

1. reduced cash flow- decrease external financing 2. increase in debt capacity- increase with size 3. Reduction in average issuing costs 4. Fewer info problems - media exposure

Question 43

What are tax benefits?

Answer 43

make better use of tax deduction and credits | -> you cannot use credit if you do not use product

Question 44

Strategic Realignment

Answer 44

new strategies that were not feasible before the acquisition

Question 45

What are managerial motivations for M&A?

Answer 45

1. increased firm size | 2. Reduced Firm Risk through diversification

Question 46

What is globalization?

Answer 46

removal to free trade and integration of national economies

Question 47

What is a multination corporation?

Answer 47

a business firm that operates in 1+ countries and the headquarter is in the home country i love sav

Question 48

What is Transnational Corporation?

Answer 48

managed from a global perspective making them controversial due to their zero alliance

Question 49

What are the 6 factors that affect International Business?

Answer 49

1. Exchange Rates 2. Language 3. Culture 4. Legal Systems 5. Economic Systems 6. Differences in country risk

Question 50

What are the two economic systems?

Answer 50

1. Centrally planned economics: resources are allocated under a central government 2. Market Economies: resources are dealt with by market forces

Question 51

What are the goals of international stock market Western stockholder?

Answer 51

generate the most money for stockholders

Question 52

What are the goals of international stock market for Europe?

Answer 52

increase corporate wealth

Question 53

What are the international stock market goals of Japan?

Answer 53

increase wealth and growth of group (Keiretsu)

Question 54

What are foreign exchange markets

Answer 54

international markets internets where currencies are sold at wholesale

Question 55

what factors affect currency rates?

Answer 55

- supply and demand - relative inflation rates - interest rates - political and economic risk

Question 56

What are the benefits of foreign market?

Answer 56

- you can transfer purchasing power between 2 currencies - pass risk of price inflation - channel for imports and exporters

Question 57

Who participates in foreign markets?

Answer 57

multinational commercial banks large investment firms small currency boutiques central banks

Question 58

What is spot rate?

Answer 58

a rate that one agrees to buy or sell a currency TODAY

Question 59

What is a forward rate?

Answer 59

rate that one agrees to buy or sell at a future date

Question 60

What is a currency rate change?

Answer 60

value of 1 currency relative to another

Question 61

What is direct quotation method?

Answer 61

how much of a home country's currency is needed to purchase a foreign currency

Question 62

What is indirect quotation?

Answer 62

how much of a foreign currency is needed to purchases a home country currency