Summary
Summary Corporate Finance Chapter 28
- Course
- Institution
- Book
A detailed and concise summary of chapter 28 from the book Corporate Finance 5th edition.
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
More summaries for
-
Test Bank for Corporate Finance, 5th Edition by Jonathan Berk, DeMarzo Chapter 1-31 A++
-
UPDATED Finance 1 for Business Summary
-
Test Bank For Corporate Finance The Core, 5th Edition by Jonathan Berk, Peter DeMarzo Chapter 1-19
Seller
Follow
notesonline
Content preview
Corporate Finance Pearon 5th EditionChapter 28: Mergers & Acquisitions
28.1 Background and Historical Trends
● Merger waves → peaks of heavy activity followed by quiet troughs of few transactions in
the takeover market.
● Merger activity is greater during economic expansions and during bull markets.
○ Technological advancements motivate managers to restructure assets through
mergers and acquisitions.
● Types of mergers
○ Horizontal merger
■ Target and acquirer are in the same industry
○ Vertical merger
■ Target’s industry buys from or sells to the acquirer’s industry
○ Conglomerate merger
■ Target and acquirer operate in unrelated industries
28.2 Market Reaction to Takeover
● A bidder is unlikely to acquire a target company for less than its current market value.
○ Most acquirers pay a premium to the current market value
● Acquisition premium → paid by an acquirer in a takeover and it is the percentage
difference between the acquisition price and the pre-merger price of a target firm
28.3 Reasons to Acquire
● Large synergies are by far the most common justification that bidders give for the
premium they pay for a target.
, Corporate Finance Pearon 5th Edition
○ Such synergies usually fall into two categories
1. Cost-reduction synergies are more common and easiest to achieve
because they generally translate into layoffs of overlapping employees
and elimination of redundant resources
2. Revenue-enhancement synergies are much harder to predict and achieve
● Economics of Scale and Scope
○ Economies of Scale
■ The savings of large company can enjoy from producing goods in high
volume, that is not available to a small company
○ Economies of Scope
■ Savings large companies can realize that come from combining the
marketing and distribution of different types of related products
● Vertical integration
○ Refers to the merger of two companies in the same industry that make products
required at different stages of the production cycle
○ A major benefit is coordination.
● Expertise
○ Firms often need expertise in particular areas to compete more effectively.
● Monopoly Gains
○ It is often argued that merging with or acquiring a major rival enables a firm to
substantially reduce competition within the industry thereby increasing profits.
■ Most countries have antitrust laws that limit such activity
○ While all companies in the industry benefit when competition is reduced, only the
merging company pays the associated costs
● Efficiency Gains
○ Another justification acquirers cite for paying a premium for a target is efficiency
gains, which are often achieved through the elimination of duplication.
● Tax Savings from Operating Losses
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller notesonline. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $9.18. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
57413 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now