Merger

Question 1

Factors for synergy

Answer 1

Diversification
Taxation
Growth
Increasing the market share

Question 2

Different types of merger

Answer 2

Horizontal
Vertical
Conglomerate
Congeneric
Reverse
Acquisition

Question 3

Horizontal merger

Answer 3

Merging happen between same Industry..
1 Consolidated company will be larger
2 move closer to monopoly or a near monopoly to avoid competition

Question 4

Vertical merger

Answer 4

Buying selling relationship

Question 5

Conglomerate merger

Answer 5

Unrelated type of business operation
Purpose
1 utilisation of financial resources
2 enlarging debt capacity
3 synergy managerial function

Question 6

Congeneric merger

Answer 6

Related to basic technology, production process or technology..
Purpose
It is to the extension of above features

Question 7

Reverse merger

Answer 7

Acquisition of a public by a private company

Question 8

Take over and take over strategy

Answer 8

Take over means when the process of acquisition is unfriendly

Startegy are
1 tender offer : an open offer or invitation publicly to the shareholders

2 street sweep : accumulated larger number of share before making an offer

3 bear hug: buyout offer is so favorable ie Little likelihood they will refuse the offer

4 strategic alliances: offering a partnership rather than a buyout

5: brand power : entering a alliance with a powerful brand to displace the target brand and as a result, buyout the weakened company

Question 9

Anti take over strategy or defensive tactis

Answer 9

1 divestiture
: divest or spin off some of the it’s business in form of independent , subsidiary company

2 crown jewel:
Sell the entire or some of the company most valuable assets

3 : poison pill

4 : poison put :

5: greenmail

6: white knight

7: white square

8: golden parachute

9 : pac man defence

Question 10

Reverse take over and the test. Requirment for takeover by reverse bid

Answer 10

Smaller company gain control of larger one.
Test are
1: the asset of the transferor co are greater tha t-free co

2: eq cap to be issued by t-fee co to the acquisition exceed its original capital issued

3 change in control in the t-fee co through the introduction of a minority holder or group of holders

Question 11

Divestiture (demerger) and the reason for that

Answer 11

Divestiture : selling one of the portions of its divisions or undertakings to another c creating an altogether separate company.

Reason
1: pay attention on core area of business
2: division or business may not be be sufficient contributing to the revenue
3: The size of the firm may be too big to handle;
4 The firm may be requiring

Question 12

Benefits of reverse merger

Answer 12

• Easy access to capital market.

• Increase in visibility of the company in corporate world.

• Tax benefits on carry forward losses acquired (public) company.

• Cheaper and easier route to become a public company.

Question 13

Functional restructuring

Answer 13

Financial restructuring is the reorganizing of a business’ assets and liability

2. Consequent upon losses the share capital or net worth of companies get substantially eroded sometimes leading to negative net worth putting the firm on the verge of liquidation.
3. To revive from this financial restructuring is. resorted to
4. It requires the need to re-start with the fresh balance sheet which is free from losses and fictitious assets. This causes sacrifice on the part of shareholders of the company.
5. Sometimes the creditors may also agree to reduce their claim & also convert their dues to the agreed extent in securities

Question 14

Ways of demerger

Answer 14

1:Sell off:
It refers to the selling a particular division, asset, product line, subsidiary or factory to another entity for an agreed upon sum which may be payable either in cash or securities.

2. Spin-off:
   It refers to the separation of the part of the existing business and creating a new entity. Shareholders of the existing company continue to be the shareholders of the new entity
3. Split-up:
   A corporate action in which a single company splits into two or more separately run companies. Shares of the original company are exchanged for shares in the new companies. After a split up, the original company ceases to exist.
4. Equity Carve Outs:
   Similar to spin off with the difference that the parent company sells minority stake in the newly formed company usually in an IPO while retaining the rest. This will bring some cash into the company.

5.Sale of a Division:
In the case of sale of a division, the seller company is demerging its business whereas the buyer company is acquiring a business.

Question 15

Reasons of selling company

Answer 15

1. Competitor’s pressure is increasing.
2. No access to new technologies and
   developments
3. Strong market entry barriers. Geographical presence could not be enhanced

4- Badly positioned on the supply and/or demand side

5. No efficient utilisation of distribution capabilities
6. New strategic business units for future growth
   could not be developed
7. Not enough capital to complete the project
8. Possibility to sell the business at an attractive price or it is in best interest of shareholders

Question 16

Ownership restructuring

Answer 16

1 going private

2 management buy out

3 leverage buyout

4 equity buyback

Question 17

Management buyout

Answer 17

A management buyout (MBO) is a form of acquisition where a company’s existing manager acquires a large part or all of the company from either the parent company or from the private owners.

An MBO can occur for a number of reasons

1. The owners of the business wants to retire & sell the company to the management. team they trust.
2. The owners of the business have lost faith in the business and are willing to sell it to the management (who believes in the future of the business) in order to get some value for the business

Question 18

Leveraged buyout

Answer 18

A leveraged buyout (LBO) is an acquisition where the purchase price is financed through a combination of equity and debt and in which the cash flows or assets of the target are used to secure and repay the debt.

2. Since the debt always has a lower cost of capital than the equity, the returns on the equity increase with increasing debt. The debt thus effectively serves as a lever to increase returns which explains the origin of the term LBO.
3. LBOS can have many different forms such as Management Buy-out (MBO), Management Buy-in (MBI), secondary buyout and tertiary buyout, among others, and can occur in growth situations, restructuring situations and insolvencies.

Question 19

five principal steps in a successful M&A programme.

Answer 19

1. Manage the pre-acquisition phase.
2. Screening candidates.
3. Eliminate those who do not meet the criteria and value the rest.
4. Negotiate.
5. Post-merger integration.

Question 20

Resaon for m&a failure

Answer 20

• Acquirers generally overpay;

• The value of synergy is over-estimated;

• Poor post-merger integration

• Psychological barriers.

Question 21

Cross border m&a

Answer 21

1. Cross-border M&A is a popular route for global growth and overseas expansion.
2. Major factors that motivate multinational companies to engage in cross-border M&A include the following

I.Globalization of production and
distribution of products and services.

2. Integration of global economies.
3. Expansion of trade and investment
   relationships on International level.
4. Many countries are reforming their
   economic and legal systems, and providing generous investment and tax incentives attract foreign to investment.
5. Privatization of state-owned enterprises and consolidation of the banking industry.

Question 22

Special purpose acquisition company

Answer 22

entity is set up with the objective to raise funds through an IPO to finance a merger or acquisition of an unidentified target within a specific time period. It is commonly known as a blank cheque company.

The main objective of SPAC is to raise money, despite having any operations or revenues. The money raised from the public is kept in an escrow account, which can be accessed while making the acquisition.