FIN 810 Lecture Notes - Lecture 5: Public Company Accounting Oversight Board, Takeover, Proxy Fight
25 Jul 2016
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Document Summary
Operating synergy (economies of scale, economies of scope, complementary technical assets and skills): improve operating efficiency, by acquiring a customer, supplier, or competitor. Diversification (new products/current market, new products/new markets, currents products/ new markets): position the firm in higher growth products or markets. Strategic realignment (technological change, regulatory and political change): aquire capabilities to adapt more rapidly to environmental changes than could be achieved if they were developed internally. Hubris (management pride): acquirers believe that their valuation of the target is more accurate than the market"s, causing them to overpay by overestimating synergies. Buying undervalued assets (q-ratio): acquire assets more cheaply when the equity of the existing companies is less than the cost of buying or building the assets. Managerialism (agency problems): increase the size of the company to increase the power and pay of the managers. Tax considerations: obtain unused net operating losses and tax credits and asset write-ups, and substitute capital gains for ordinary income.
