BU393 Lecture Notes - Lecture 14: Severance Package, Net Present Value, Golden Parachute
Document Summary
Describe the various ways that corporate acquisitions can be financed. Two ways to pay for an acquisition: to pay cash, pay through an exchange of stock, using debt. Synergy occurs where two firms combined are worth more than they are separately. Horizontal mergers occurs when firms acquire companies in their own industry, this can eliminate a competitor, or allow for rapid expansion into a new market. If you hold two securities that are no perfectly correlated, then the variation in the return on one can offset the other and total variability is reduced. Typical acquisitions are structured as either: an outright purchase of shares, an exchange of shares in the acquiring company for shares in the target company, a combination of both. Mergers are evaluated by acquiring company shareholders using the npc methodology. Positive npv mergers are accepted, and negative npv mergers are rejected. Npv of mergers = benefit minus cost.
