This is the document I used to prepare myself for the SMM233 Mergers & Acquisitions exam, for which I achieved a 73.
The document covers all important topics: the basics of deals, acquisition premiums, hostile vs. friendly, types of deals, the process, reasons, due diligence, anti-takeover defenc...
Table of Contents
Lectures..............................................................................................................................2
Week 1.........................................................................................................................................2
Week 2.........................................................................................................................................3
Week 3.........................................................................................................................................7
Week 4.........................................................................................................................................9
Week 5.......................................................................................................................................12
Week 6.......................................................................................................................................16
Cases................................................................................................................................18
The Cadbury Defence..................................................................................................................18
Battle for M&S............................................................................................................................21
Manchester United Buccaneers..................................................................................................24
Deutsche Börse...........................................................................................................................26
, Lectures
Week 1
Acquisition: Buyer + Target B’ (like buying a house)
- The buyer buys the target and the target has disappeared from the market. Maybe
the buyer has even taken the name of the target or a product; f.e. Apple bought
Beats and liked their headphones and incorporated their product into their product
mix.
Merger: X + Y = Z (like a marriage; 2 parties coming together as equals)
- X disappears; Y disappears a totally new company is created. You might still take
the name of X and that becomes the name of company Z or you can even take XY as
a name, f.e. Glaxo + SmithKline became GlaxoSmithKline.
Acquisition premium: usually between 20/40%; buyer has to pay 20 to 40% on top of the
undisturbed (before any acquisition rumours) share price to buy the shares of the company.
Kraft, however, bought Cadbury for 60% premium (because it was a hostile deal).
however, for a merger this is usually around 0%: who would pay that premium? Who
buys who? Yes, there is something called an exchange ratio, but it’s 2 parties coming
together (like a marriage).
Hostile vs. friendly
- Hostile: board of directors reject bid
o Only relates to publicly listed companies
o Hostile can become friendly to get the board to recommend it; Kraft raised
the price offer so high that eventually the BOD said yes because it’s at a value
that we don’t think we can actually bring to the company
o With a private company, you can’t go around the BOD to convince the
shareholders, thus only for public companies
- Friendly: 95%: where BOD recommends the bid to its shareholders
- Per year: around 3% is hostile bid, but only 0.3% stays a hostile bid so more than
99% is a friendly acquisition
Horizontal/vertical/conglomerate:
- Horizontal: 70 – 75%: you buy a competitor, someone who operates in the same
business (doesn’t have to be a direct competitor); f.e. if M&S buys Harrods
- Vertical: 25%: where you buy a supplier or a customer; where you go up of down in
the value chain
- Conglomerate: <-5%: you do a deal with a company that is unrelated to what you
currently do; f.e. an airline buying an icecream company (Unilever)
Types of M&A deals:
- Complementary: bidder acquires target to complement some weakness. F.e. Kraft
wanted to acquire Cadbury to strengthen its position in India and other emerging
markets (or LSE: had some weaknesses DB wanted to strengthen)
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