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- 2. Defining M&A One plus one makes three: this equation is the special alchemy of a merger
- 3. Distinction between Mergers and Acquisitions Although they are often uttered in the same breath and used
- 4. Merger “is” and “isn’t” In practice, however, actual mergers of equals don't happen very often. Usually,
- 5. Synergy may be in…. Staff reductions - Mergers tend to mean job losses. Money is saved
- 6. ..or.. Acquiring new technology - To stay competitive, companies need to stay on top of technological
- 7. Varieties of Mergers From the perspective of business structures, there is a whole host of different
- 8. Merger types There are two types of mergers that are distinguished by how the merger is
- 9. Acquisitions Unlike all mergers, all acquisitions involve one firm purchasing another - there is no exchange
- 10. Reverse merger Another type of acquisition is a reverse merger, a deal that enables a private
- 11. Comparative ratios The following are two examples of the many comparative metrics on which acquiring companies
- 12. Replacement cost In a few cases, acquisitions are based on the cost of replacing the target
- 13. Replacement cost In a few cases, acquisitions are based on the cost of replacing the target
- 14. Replacement cost In a few cases, acquisitions are based on the cost of replacing the target
- 15. Replacement cost In a few cases, acquisitions are based on the cost of replacing the target
- 16. Discounted Cash Flow (DCF) A key valuation tool in M&A, discounted cash flow analysis determines a
- 17. Synergy calculations In other words, the success of a merger is measured by whether the value
- 18. What 2 look 4 A reasonable purchase price - A premium of, say, 10% above the
- 19. Starting offer When the CEO and top managers of a company decide that they want to
- 20. CounterStrike Accept the Terms of the Offer Attempt to Negotiate - The tender offer price may
- 21. Not so fast…. Execute a Poison Pill or Some Other Hostile Takeover Defense – A poison
- 22. Demergers (Break-ups) As mergers capture the imagination of many investors and companies, the idea of getting
- 23. Advantages The rationale behind a spinoff, tracking stock or carve-out is that "the parts are greater
- 24. Advantages (cont’d) Also, separating a subsidiary from its parent can reduce internal competition for corporate funds.
- 25. Disadvantages De-merged firms are likely to be substantially smaller than their parents, possibly making it harder
- 26. Disadvantages (cont’d) With separate financial disclosure, investors are better equipped to gauge the value of the
- 27. Restructuring Methods There are several restructuring methods: doing an outright sell-off, doing an equity carve-out, spinning
- 28. Sell-Offs A sell-off, also known as a divestiture, is the outright sale of a company subsidiary.
- 29. Equity Carve-Outs More and more companies are using equity carve-outs to boost shareholder value. A parent
- 30. Carve-out governance The new legal entity of a carve-out has a separate board, but in most
- 31. Warnings That said, sometimes companies carve-out a subsidiary not because it's doing well, but because it
- 32. Spinoffs A spinoff occurs when a subsidiary becomes an independent entity. The parent firm distributes shares
- 33. More spinoffs Like carve-outs, spinoffs are usually about separating a healthy operation. In most cases, spinoffs
- 34. Tracking Stock A tracking stock is a special type of stock issued by a publicly held
- 35. Tracking stock cont’d Why would a firm issue a tracking stock rather than spinning-off or carving-out
- 36. Conclusions A merger can happen when two companies decide to combine into one entity or when
- 37. MERGERS: GOOD….BAD… UGLY http://www.rasmussen.edu/degrees/business/blog/best-and-worst-corporate-mergers/
- 38. Disney-Pixar Mickey and Nemo. Pinocchio and “Toy Story.” Cinderella and “Cars.” The merger of legendary Walt
- 39. Sirius/XM radio merger On July 29, 2008, satellite radio officially had one provider when Sirius Satellite
- 40. Exxon-Mobil Big oil got even bigger in 1999, when Exxon and Mobil signed a $81 billion
- 41. New York Central and Pennsylvania Railroad Merger failures didn’t exist in just the past few decades.
- 42. Daimler Benz/Chrysler ($37B) In 1998, Mercedes-Benz manufacturer Daimler Benz merged with U.S. auto maker Chrysler to
- 43. Mattel/The Learning Company ($3.5B) Mattel has remained a childhood staple for decades, and in 1999, it
- 44. Sears / Kmart Towards the end of the twentieth century, department store legend Sears found itself
- 45. Sprint/Nextel In 2005, another major communication merger occurred, this time between Sprint and Nextel Communications. These
- 46. AOL/Time Warner At the height of the Internet craze, two media merged together to form (what
- 48. Скачать презентацию
Defining M&A
One plus one makes three: this equation is the special
Defining M&A
One plus one makes three: this equation is the special
reasoning behind M&A. This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, costefficient
company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone.
Distinction between Mergers and Acquisitions
Although they are often uttered in the
Distinction between Mergers and Acquisitions
Although they are often uttered in the
Merger “is” and “isn’t”
In practice, however, actual mergers of equals don't
Merger “is” and “isn’t”
In practice, however, actual mergers of equals don't
A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased – it is always regarded as an acquisition. Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders.
Synergy may be in….
Staff reductions - Mergers tend to mean
Synergy may be in….
Staff reductions - Mergers tend to mean
Economies of scale. Whether it's purchasing stationery or a new corporate IT system, a bigger company placing the orders can save more on costs. Mergers also translate into improved purchasing power to buy equipment or office supplies - when placing larger orders, companies have a greater ability to negotiate prices with their suppliers.
Acquiring new technology - To stay competitive, companies need to stay on top of technological developments and their business applications. By buying a smaller company with unique technologies, a large company can maintain or develop a competitive edge.
Improved market reach and industry visibility - Companies buy companies to reach new markets and grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones.
..or..
Acquiring new technology - To stay competitive, companies need to stay
..or..
Acquiring new technology - To stay competitive, companies need to stay
Improved market reach and industry visibility - Companies buy companies to reach new markets and grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones.
Varieties of Mergers
From the perspective of business structures, there is a
Varieties of Mergers
From the perspective of business structures, there is a
Horizontal merger - Two companies that are in direct competition and share the same product lines and markets.
Vertical merger - A customer and company or a supplier and company. Think of a cone supplier merging with an ice cream maker.
Market-extension merger - Two companies that sell the same products in different markets.
Product-extension merger - Two companies selling different but related products in the same market.
Conglomeration - Two companies that have no common business areas.
Merger types
There are two types of mergers that are distinguished by
Merger types
There are two types of mergers that are distinguished by
Purchase Mergers - As the name suggests, this kind of merger occurs when one company purchases another. The purchase is made with cash or through the issue of some kind of debt instrument; the sale is taxable. Acquiring companies often prefer this type of merger because it can provide them with a tax benefit. Acquired assets can be written-up to the actual purchase price, and the difference between the book value and the purchase price of the assets can depreciate annually, reducing taxes payable by the acquiring company.
Consolidation Mergers - With this merger, a brand new company is formed and both companies are bought and combined under the new entity. The tax terms are the same as those of a purchase merger.
Acquisitions
Unlike all mergers, all acquisitions involve one firm purchasing another -
Acquisitions
Unlike all mergers, all acquisitions involve one firm purchasing another -
In an acquisition, as in some of the merger deals we discuss above, a company can buy another company with cash, stock or a combination of the two. Another possibility, which is common in smaller deals, is for one company to acquire all the assets of another company. Company X buys all of Company Y's assets for cash, which means that Company Y will have only cash (and debt, if they had debt before). Of course, Company Y becomes merely a shell and will eventually liquidate or enter another area of business.
Reverse merger
Another type of acquisition is a reverse merger, a deal
Reverse merger
Another type of acquisition is a reverse merger, a deal
Comparative ratios
The following are two examples of the many comparative metrics
Comparative ratios
The following are two examples of the many comparative metrics
Price-Earnings Ratio (P/E Ratio) - With the use of this ratio, an acquiring company makes an offer that is a multiple of the earnings of the target company. Looking at the P/E for all the stocks within the same industry group will give the acquiring company good guidance for what the target's P/E multiple should be.
Enterprise-Value-to-Sales Ratio (EV/Sales) - With this ratio, the acquiring company makes an offer as a multiple of the revenues, again, while being aware of the price-to-sales ratio of other companies in the industry.
Replacement cost
In a few cases, acquisitions are based on the cost
Replacement cost
In a few cases, acquisitions are based on the cost
Replacement cost
In a few cases, acquisitions are based on the cost
Replacement cost
In a few cases, acquisitions are based on the cost
Replacement cost
In a few cases, acquisitions are based on the cost
Replacement cost
In a few cases, acquisitions are based on the cost
Replacement cost
In a few cases, acquisitions are based on the cost
Replacement cost
In a few cases, acquisitions are based on the cost
Discounted Cash Flow (DCF)
A key valuation tool in M&A, discounted cash
Discounted Cash Flow (DCF)
A key valuation tool in M&A, discounted cash
Synergy calculations
In other words, the success of a merger is measured
Synergy calculations
In other words, the success of a merger is measured
What 2 look 4
A reasonable purchase price - A premium
What 2 look 4
A reasonable purchase price - A premium
Cash transactions - Companies that pay in cash tend to be more careful when calculating bids and valuations come closer to target. When stock is used as the currency for acquisition, discipline can go by the wayside.
Sensible appetite – An acquiring company should be targeting a company that is smaller and in businesses that the acquiring company knows intimately. Synergy is hard to create from companies in disparate business areas. Sadly, companies have a bad habit of biting off more than they can chew in mergers.
Starting offer
When the CEO and top managers of a company decide
Starting offer
When the CEO and top managers of a company decide
Working with financial advisors and investment bankers, the acquiring company will arrive at an overall price that it's willing to pay for its target in cash, shares or both. The tender offer is then frequently advertised in the business press, stating the offer price and the deadline by which the shareholders in the target company must accept (or reject) it.
CounterStrike
Accept the Terms of the Offer
Attempt to Negotiate - The tender
CounterStrike
Accept the Terms of the Offer
Attempt to Negotiate - The tender
Not so fast….
Execute a Poison Pill or Some Other Hostile Takeover
Not so fast….
Execute a Poison Pill or Some Other Hostile Takeover
Find a White Knight - As an alternative, the target company's management may seek out a friendlier potential acquiring company, or white knight. If a white knight is found, it will offer an equal or higher price for the shares than the hostile bidder.
Demergers (Break-ups)
As mergers capture the imagination of many investors and companies,
Demergers (Break-ups)
As mergers capture the imagination of many investors and companies,
Advantages
The rationale behind a spinoff, tracking stock or carve-out is that
Advantages
The rationale behind a spinoff, tracking stock or carve-out is that
Advantages (cont’d)
Also, separating a subsidiary from its parent can reduce internal
Advantages (cont’d)
Also, separating a subsidiary from its parent can reduce internal
Disadvantages
De-merged firms are likely to be substantially smaller than their parents,
Disadvantages
De-merged firms are likely to be substantially smaller than their parents,
Disadvantages (cont’d)
With separate financial disclosure, investors are better equipped to gauge
Disadvantages (cont’d)
With separate financial disclosure, investors are better equipped to gauge
Restructuring Methods
There are several restructuring methods:
doing an outright sell-off,
doing
Restructuring Methods
There are several restructuring methods:
doing an outright sell-off,
doing
spinning off a unit to existing shareholders
issuing tracking stock.
Each has advantages and disadvantages for companies and investors. All of these deals are quite complex.
Sell-Offs
A sell-off, also known as a divestiture, is the outright sale
Sell-Offs
A sell-off, also known as a divestiture, is the outright sale
Besides getting rid of an unwanted subsidiary, sell-offs also raise cash, which can be used to pay off debt. In the late 1980s and early 1990s, corporate raiders would use debt to finance acquisitions. Then, after making a purchase they would sell-off its subsidiaries to raise cash to service the debt. The raiders‘ method certainly makes sense if the sum of the parts is greater than the whole. When it isn't, deals are unsuccessful.
Equity Carve-Outs
More and more companies are using equity carve-outs to boost
Equity Carve-Outs
More and more companies are using equity carve-outs to boost
A carve-out is a strategic avenue a parent firm may take when one of its subsidiaries is growing faster and carrying higher valuations than other businesses owned by the parent. A carve-out generates cash because shares in the subsidiary are sold to the public, but the issue also unlocks the value of the subsidiary unit and enhances the parent's shareholder value.
Carve-out governance
The new legal entity of a carve-out has a separate
Carve-out governance
The new legal entity of a carve-out has a separate
Warnings
That said, sometimes companies carve-out a subsidiary not because it's doing
Warnings
That said, sometimes companies carve-out a subsidiary not because it's doing
Carve-outs can also create unexpected friction between the parent and subsidiary. Problems can arise as managers of the carved-out company must be accountable to their public shareholders as well as the owners of the parent company. This can create divided loyalties.
Spinoffs
A spinoff occurs when a subsidiary becomes an independent entity.
Spinoffs
A spinoff occurs when a subsidiary becomes an independent entity.
Thus, spinoffs are unlikely to be used when a firm needs to finance growth or deals. Like the carve-out, the subsidiary becomes a separate legal entity with a distinct management and board.
More spinoffs
Like carve-outs, spinoffs are usually about separating a healthy operation.
More spinoffs
Like carve-outs, spinoffs are usually about separating a healthy operation.
Investors, however, should beware of throw-away subsidiaries the parent created to separate legal liability or to off-load debt. Once spinoff shares are issued to parent company shareholders, some shareholders may be tempted to quickly dump these shares on the market, depressing the share valuation.
Tracking Stock
A tracking stock is a special type of stock issued
Tracking Stock
A tracking stock is a special type of stock issued
Tracking stock cont’d
Why would a firm issue a tracking stock rather
Tracking stock cont’d
Why would a firm issue a tracking stock rather
In rare cases, holders of tracking stock have no vote at all.
Conclusions
A merger can happen when two companies decide to combine into
Conclusions
A merger can happen when two companies decide to combine into
The functions of synergy allow for the enhanced cost efficiency of a new entity made from two smaller ones - synergy is the logic behind mergers and acquisitions.
Acquiring companies use various methods to value their targets. Some of these methods are based on comparative ratios - such as the P/E and P/S ratios - replacement cost or discounted cash flow analysis.
An M&A deal can be executed by means of a cash transaction, stock-for-stock transaction or a combination of both. A transaction struck with stock is not taxable.
Break up or de-merger strategies can provide companies with opportunities to raise additional equity funds, unlock hidden shareholder value and sharpen management focus.
De-mergers can occur by means of divestitures, carve-outs spinoffs or tracking stocks.
Mergers can fail for many reasons including a lack of management foresight, the inability to overcome practical challenges and loss of revenue momentum from a neglect of day-to-day operations.
MERGERS: GOOD….BAD… UGLY
http://www.rasmussen.edu/degrees/business/blog/best-and-worst-corporate-mergers/
MERGERS: GOOD….BAD… UGLY
http://www.rasmussen.edu/degrees/business/blog/best-and-worst-corporate-mergers/
Disney-Pixar
Mickey and Nemo. Pinocchio and “Toy Story.” Cinderella and “Cars.” The
Disney-Pixar
Mickey and Nemo. Pinocchio and “Toy Story.” Cinderella and “Cars.” The
Sirius/XM radio merger
On July 29, 2008, satellite radio officially had one
Sirius/XM radio merger
On July 29, 2008, satellite radio officially had one
Exxon-Mobil
Big oil got even bigger in 1999, when Exxon and Mobil
Exxon-Mobil
Big oil got even bigger in 1999, when Exxon and Mobil
New York Central and Pennsylvania Railroad
Merger failures didn’t exist in just
New York Central and Pennsylvania Railroad
Merger failures didn’t exist in just
Daimler Benz/Chrysler ($37B)
In 1998, Mercedes-Benz manufacturer Daimler Benz merged with U.S.
Daimler Benz/Chrysler ($37B)
In 1998, Mercedes-Benz manufacturer Daimler Benz merged with U.S.
Mattel/The Learning Company ($3.5B)
Mattel has remained a childhood staple for decades,
Mattel/The Learning Company ($3.5B)
Mattel has remained a childhood staple for decades,
Sears / Kmart
Towards the end of the twentieth century, department store
Sears / Kmart
Towards the end of the twentieth century, department store
and Sears Holdings remains on the brink of utter failure, especially
in light of the recent recession.
Sprint/Nextel
In 2005, another major communication merger occurred, this time between Sprint
Sprint/Nextel
In 2005, another major communication merger occurred, this time between Sprint
AOL/Time Warner
At the height of the Internet craze, two media merged
AOL/Time Warner
At the height of the Internet craze, two media merged