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M&A Short Summary
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Short summary of Mergers & Acquisitions. Very useful for the exam, if you are allowed to use an A4 sheet with your own notes.
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Lecture notes M&A
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Lecture 1 most of FDI occurs through M&ATakeover hostile ((un)contested) / friendly (acquisition stock/assets)(merger: statutory=1 survivor, consolidation=1 newco, staged merger)
- Stock. advantages: no formal shareh approval necessary/all assets transferred. Disadv: buyer is liable for all liabilities/integration difficult with <100% stock.
- Assets. advantages: no minority shareh/ only 50% of shareh approval/ cherry picking for buyers. Disadv: consent customers/ buyer lose tax credits/ transfer tax
- Merger vs. acquisition. advantages: transfer happens auto/ no minority shareh/ no transfer tax. Disadv: liabilities assumed/ 75% shareh approval/ sue bidder
Corporate restructuring financial = changes in a firms capital structure to lower overall cost of capital or as antitakeover defense
- Going public – stock repurchase – equity offering – debt restructuring – liquidation
operational = changes in the composition of a firms assets structure
- Joint venture – alliances – downscoping(divesture-spin-off) – downsizing(workforce reduction) – takeover
Lecture 3 M&A waves in industry propagate across borders to the countries connected through trade flows.
- Degree centrality is important = counting connections + look at centrality
- Eigenvector centrality = the influence a connection has on a network.
Lecture 5 do M&A's payoff
Investment banks: 1. Skilled-advice = banks are helpful to make sure that the companies perform well when they do the merger
2. Passive-execution = banks do what the client asks, no added value of their advice/skills
- Companies select banks on high-market-share rather dan high-CAR advisors.
- Diversification of risk helps bondholders, but not shareholders.
- incremental cash flows = Δrevenue – Δcost - Δtax – Δcapital requirements operating synergies – financial synergies
- M&A reciprocal synergies, really cooperate. Hard resources. Large amount of redundant resources
- Alliances modular & sequential (equity/cooperation) synergies. Soft resources.
Value increasing merger theories:
- Horizontal acquisition = in same industry. (competition efficiency market power )
- Vertical acquisition = of a supplier. (market power efficiency )
- Related or complementary acquisition = of a company in related industry. (multi-market power economies of scope)
- The Q-theory of mergers. Q-ratio = market value of the acquirers stock to the replacement cost of its assets. High-Q buy low-Q
- Industry shocks hypothesis.
Value decreasing merger theories:
- Overvaluation hypothesis of mergers = exchange overvalued shares.
- Managerial hubris = overconfident, buy another company, value decreased, thought they can manage target company better.
- Managerial discretion hypothesis = wanting a bigger company, acting in best interest of themselves. Consider target if enough info.
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