This website uses cookies to ensure you have the best experience. Learn more

Fundamentals Of Mergers And Acquisitions Essay

3611 words - 15 pages

FNCE90012 Mergers & Value Enhancing Strategies

Semester 1, 2015

Lecture 1: Fundamentals

Lecture 1: Fundamentals
Overview of Lecture
1. Fundamentals – Takeovers, acquisitions, and mergers – Three examples – Types of mergers 2. Ownership and Control 3. Merger Statistics 4. Why Do Mergers Occur?

Readings
• Brealy, Myers, Allen, 2011, Principles of Corporate Finance, 10th edition, Chapter 31.
1

1. Fundamentals

2

Takeovers, Acquisitions, Mergers and Schemes
• Takeover
– One firm (the bidder) acquires control of another firm (the target) by purchasing the voting shares of the target from the shareholders of the target – The consideration paid by the bidder may be cash ...view middle of the document...

11

Types of Mergers - 1

Horizontal takeovers

Bidding and target firms are in the same line of business

Types of Mergers - 2

Vertical takeovers

Firms are in different stages of the production process

2007 takeover of Arrow Taxis Ltd by Cabcharge Australia, a company whose core business was founded on providing payment services for taxi operators

Types of Mergers - 3

Conglomerate takeovers

Firms are in different lines of business

2. Ownership and Control

15

Financial Securities
• The basic resource of a company is the stream of future cashflows generated by its assets. • Companies raise external capital by issuing financial securities = claims over these cashflows • A financial security evidences the rights and obligations of both the issuer and the investor

The nature of equity: characteristics

Voting
•One share one vote

Return
•Three ways that shareholders can generate a return

Risk
•Uncertain return on capital •Subordinated right to return of capital

The nature of equity: dilution and control
• What is the impact of a new equity issue on the wealth and voting power of a firm’s existing shareholders ? • In general, it depends on the issue price, the type of issue and the identity of the investors who take up the new shares: • Three types of equity issue:
– public offer - an offer of shares to the general public – private placement - an offer of shares to a select group of investors (usually large institutions) – pro-rata (or rights or priority) offer - an offer of shares to existing shareholders in the same proportion to the number of shares already held

The nature of equity: dilution and control
• An equity issue may transfer wealth &/or transfer voting power from existing shareholders to new investors – in this case, existing shareholders are said to suffer a dilution in wealth &/or control Example • Daffy Limited has 10 million shares on issue with a current share price of $10 each. Daffy then raises $9 million by placing 1 million shares at $9 each to a group of financial institutions. • The pre-and post-placement capital structure of the company is set out below: Pre Post
Issued Shares:  old s’holders  new s’holders (m) 10 0 (%) 100 0 (m) 10 1 (%) 90.9 9.1

Value of Equity:  old s’holders  new s’holders

($m) $100 0 $100

($m) $99.09 $9.91 $109

Managers and shareholders
• Voting control of a firm rests with the owners/shareholders of the firm • Managerial control of a firm rests with the directors/executives (collectively the “managers”). • There is a principal-agent relationship between the owners and the managers • A manager should act in the best interests of the owners … but this may not always occur … sometimes intentionally and sometimes not - there is potential for conflict between managers and owners - imposes “agency costs” on the owners of the firm … these costs include monitoring the manager’s behaviour and any residual...

Other Papers Like Fundamentals of Mergers and Acquisitions

Mergers And Acquisitions Essay

1833 words - 8 pages Introduction:Mergers or acquisitions have become a norm for companies aiming at growth. Various companies resort to mergers and acquisition, to form strategic alliances. In majority of cases the underlying reason for these is to guarantee long-term sustained achievement of "fast profitable growth" for the business. In today's competitive world it is important for various companies to keep up with a rapidly increasing diversified global market

Mergers and Acquisitions Essay

2355 words - 10 pages Executive Summary The reason behind mergers and acquisitions is to create more value as two organisations put together would be more valuable than two separate organisations whereas the basic theory behind buying an organisation is to build shareholder value over and above of the sum of the two organisations. Mergers and acquisitions have become a regular occurrence of growth for organisations in the recent years. Organisations are

Company Mergers And Acquisitions

2240 words - 9 pages Introduction The paper examines the challenges faced by organization during mergers and acquisitions. It explains the challenges of merging the HR processes of the two organizations and suggests implementation strategies to prevent risks and delays. Mergers and acquisitions are preferred by companies in an increasingly competitive environment to acquire economies of scale and critical mass. Mergers and acquisitions result in complete change in

Mergers and Acquisitions

653 words - 3 pages Acquisitions and Mergers The merger of the Simon Property Group/DeBartolo Realty Group in 1996 created the largest retail REIT in the history of the United States. The initial partnership led to this new conglomerate owning more than 66 community centers, 111 regional shopping centers, and 66 community centers in 32 states (National Real Estate Investor). Today, the company has amassed over 380 properties and a total market capitalization of

Mergers And Acquisitions

1382 words - 6 pages Assignment 2: Mergers and Acquisitions Ryan Butler Dr. Laura Poluka BUS508 30 July 2014 Augusta Campus, Strayer University Mergers and Acquisitions Examine the circumstances that resulted in the merger or acquisition for the selected company. Speculate on two (2) reasons why the resulting decision to merge or to acquire / be acquired was made. The two airlines American Airlines and US Airways merged on December 9th, 2013 to form the

Mergers and Acquisitions

1253 words - 6 pages training. References American Airlines. (2014). AMR merger investor presentation. Retrieved on 8th March 2014 from http://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irol-irhome Boeh, K. & Beamish, P. (2007). Mergers and acquisitions: Text and cases. New York. Sage publications. Bainbridge, S. (2003). Mergers and acquisitions. London. Foundation press. CAPA center for aviation. (2011). US carriers continue to dominate Latin

Mergers and Acquisitions - 2774 words

2774 words - 12 pages acquisition the firm buys shares from the share holders of the target companies .This helps the buyer company to gain equity in the target company merging the two firms together. 2)Asset purchase Acquisition:The source company specifically selects particular asstes of the target company to be purchased without having to buy the liabilities of the target company. Reasons for Mergers and Acquisitions: Synergy:This is the widely used word in M&A .By

Mergers and Acquisitions - 2475 words

2475 words - 10 pages Introduction Mergers and Acquisitions, shortly termed as M&A, generally refer to as the strategies that are followed in purchasing, selling or merging different companies by means of finance, strategies or management of the work force. The main theme of the mergers and acquisitions is to save the fainted companies and provide them with the financial aid or to capture the new business areas with the merging of companies in a same type of

Mergers and Acquisitions - 707 words

707 words - 3 pages excess capacity due to the increased price of exporting and the various tariffs and government regulations. Therefore, foreign competition is really not a major concern for domestic companies. They have been able to sell most of their wine domestically and there with the export tariffs, foreign competition is minimal, but definitely rising. With the number of wine companies, mergers and acquisitions occur rather frequently and there are always

Mergers And Acquisitions

1264 words - 6 pages take place for a multitude of reasons, financial decision-makers need to be sure that sound reasoning and motives are the driving force behind a merger or acquisition to be sure that the shareholders' interests are protected in the transaction. To that end, a stock financed merger usually spreads the risks of the transaction across both the buying and selling shareholders. Domestic mergers carry financial and organizational risks that need to be

Mergers And Acquisitions – Amoco

1218 words - 5 pages Mergers and acquisitions – Amoco Highlights Transaction summary Merger of Amoco into a newly formed BP first-tier US subsidiary Amoco shareholders receive BP plc ordinary shares as ADRs Unified global management team US and UK GAAP results presented using merger accounting or on a "pooling of interest" basis US$-denominated group financials and dividends Transaction recommended by both Boards Effective: December 31, 1998 Transaction

Related Essays

Mergers And Acquisitions Essay 4859 Words

4859 words - 20 pages MERGERS AND ACQUISITIONS TABLE OF CONTENTS |TITLE |PAGE NUMBER | |ABSTRACT |3 | |INTRODUCTION |4

Mergers And Acquisitions Essay 871 Words

871 words - 4 pages majority of the organization's benefits or purchasing up its extraordinary shares of stock. Advantages of Mergers and Acquisitions are complex. Mergers and Acquisitions can produce cost proficiency through economies of scale, can improve the income through addition in piece of the pie and can even create expense picks up. The primary advantages from mergers and acquisitions can be recorded as expanded worth era, increment in expense productivity

Mergers And Acquisitions Essay 891 Words

891 words - 4 pages Mergers & Acquisitions Angela Clarke Averett University Strategic Management BSA444 Dr. Philip Sturm August 16, 2015 Mergers & Acquisitions The following paper will cover information regarding mergers and acquisitions. I will cover the reasons why some mergers fail and others succeed. Examples of companies will be provided that have succeeded and failed with mergers and acquisitions. Mergers and acquisitions will be

Mergers And Acquisitions Essay 1737 Words

1737 words - 7 pages Mergers and acquisitions (M & A) are some of many strategies businesses employ to help significantly increase shareholder value. Although mergers and acquisitions are thought to be synonymous with one another, both terms have separate meanings and have separate business outcomes. A merger happens when two companies come together and create a single new company. New stock is then issued as that new company. In an acquisition one company is