33:390:400 Lecture Notes - Lecture 8: Tender Offer, Bellsouth, Nbcuniversal

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11 May 2018

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Chapter 29: Mergers, Acquisitions, and Divestitures

Basic Terminology:

- Bidder: Acquiring firm

- Target: Firm that is being acquired

29.1 The Basic Forms of Acquisitions:

Three types: Merger of Consolidation, Acquisition of Stock, and Acquisition of Assets

1. Merger of Consolidation

- Merger: The absorption of one firm by another

- Acquiring firm retains its name; acquired firm ceases to exist

- Acquiring firm acquires all assets and liabilities of acquired firm

- Consolidation: Same as merger, except an entire new firm is created

- Both bidder and target terminate previous legal existence, become a new firm

- Cheapest type of acquisition

- Stockholders must approve a merger; usually need 2/3 of SH to be in favor

- SH of acquired firm have appraisal rights

- Can demand that the acquiring firm purchases their shares at fair value

2. Acquisition of Stock

- Acquirer purchases controlling equity interest in target

- Purchase firm’s voting stock in exchange for cash/stock/securities

- May start out private (between management) → move to tender offer

- Tender Offer: A public offer to buy shares of a target firm from existing SH

- Through public advertisements,

Differences between a Merger and an Acquisition of Stock:

1. Stock acquisitions do not require a shareholder meeting and vote

2. Stock acquisitions allow the bidder to avoid dealing with the target firm’s management

3. Stock acquisitions are often unfriendly b/c target’s management may be against it

- This makes the cost of an acquisition of stock greater than the cost of a merger

4. A minority of SH will usually hold out in a tender offer → a bidder will control the target

firm, but not all 100% of the target will be absorbed

- Bidder will get complete absorption through a formal merger

3. Acquisition of Assets

- Acquiring firm can buy all of another firm’s assets

- Acquired firm still retains its “shell” or the face of the company

- Need a formal SH vote

- Can be costly

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Classifying types of mergers:

1. Horizontal Acquisitions:

- The acquirer and the acquired firm are in the same industry

- Ex: AT&T’s acquisition of T-Mobile or Bell South

2. Vertical Acquisitions:

- Involves firms at different stages of productions

- Ex: Cable operator Comcast acquiring TV network NBC Universal

- Backward Integration: Acquisition of a supplier

- Forward Integration: Acquisition of a distributor

3. Conglomerate Acquisitions:

- Involves companies in unrelated lines of business

- More popular in the technology sector

Takeover: Transfer of control of a firm from one group of SH to another

- Occur through: Acquisitions, Proxy Contests, and Going-Private Transactions

- Acquisitions: Either merger, acquisition of stock, or acquisition of assets

- Proxy Contest: When a group of SH attempts to gain seats on the Board of Directors

- A group of SH will solicit proxy votes from other SH

- Going-Private Transactions: Small group of investors purchase all equity of public firm

- Firm then delists stock from stock exchanges

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Document Summary

Acquiring firm retains its name; acquired firm ceases to exist. Acquiring firm acquires all assets and liabilities of acquired firm. Merger: the absorption of one firm by another. Consolidation: same as merger, except an entire new firm is created. Both bidder and target terminate previous legal existence, become a new firm. Stockholders must approve a merger; usually need 2/3 of sh to be in favor. Sh of acquired firm have appraisal rights. Three types: merger of consolidation, acquisition of stock, and acquisition of assets: merger of consolidation, acquisition of stock. Acquirer purchases controlling equity interest in target. Purchase firm"s voting stock in exchange for cash/stock/securities. May start out private (between management) move to tender offer. Tender offer: a public offer to buy shares of a target firm from existing sh. Acquiring firm can buy all of another firm"s assets. Acquired firm still retains its shell or the face of the company.

Related Questions

I have a essay written up already, the problem is that I submitted it and received a 62% return from turnitin, which is totally unacceptable. It must be below 20%. Is it possible for you to look over it, make any corrections or suggestions to re-submit it. The majority of the repetitiveness was from my intro paragraph and the definitions I used in the essay. Sent at 04:42 AM The essay is attach. I will need this by this evening if that's possible. thanks

Identify the type of corporate restricting that fits with common theories of what are assumed to be causes of mergers and acquisitions.

Corporate reconstructing is more often defined as re-designing organizationâs practice and structure; so to remain competitive and sustainable in the market (s). There may be several reasons for corporate restructuring. These includes, but not limited to, re-positioning in the market, discovery of a new market or becoming more profitable and/or economical. The corporate restructuring is generally classified into or two different categories: operational reconstructing and financial reconstructing. This entails changes in the alignment of firmâs asset structure by acquiring new business outright, by partial sale, by a spin-off of companies or via product lines. This can also include downsizing through closure of non-profitable units. Financial reconstructing deals with the changes in the capital structure of the firm. Share repurchase or adding debt in capital structure; just to name. Financial limiting hardly deals with mergers and acquisitions, hence we will discuss the cause of mergers and acquisitioning and how it is related to that the operational restructuring only.

Omit the chart in the question!

There are several types of Restructuring are given below:

A merger is a combination of two or more firms who combine all operations, officers, structure and other functions of business to form a new entity. Desired effect being not just the accumulation of assets and liabilities of the distinct entities, but also to achieve several other benefits such as: economics of scale, acquisition of new technologies and having access to new markets. Additionally, the merger allows for one company giving shareholders in the other stock in exchange for surrounding the stock of the first company. And it allow for the entities to retain its original identity.

Mergers can be classified into the following categories:

Horizontal Mergers

Two merged units were doing the same business i.e. TMobile and Sprint they were competitors with one another in the market. The basic motive in this type of merger is to consolidate in the market so as to gain advantage in negotiating with customers as well as having better position with respect to other competitors.

Vertical Mergers

This type of mergers is conducted between customer and suppliers of a value chain process and main motive in this type of merger is gain maximum efficiency in supply chain and minimization of transaction cost.

Congener Mergers

In this type of mergers, the two firms will be sharing similar kind of industry structure at least in one form of their operation and therefore try to combine operation in that one form and get efficiency benefit in supply chain and other operations.

Conglomerate

A conglomerate merger is a merger between two firms having unrelated business. The motive behind a conglomerate is a.) Better utilization of financial resources b.) Increase in debt capacity, c.) Increase in the share price by increased EPS with decreased cost capital d) Cross selling and e.) Synergy

Cash-out merger

In this type of merger the share of one unit involved in merger donât want to retain their share in the merged unit and therefore are compensated with cash in place of the share.

Acquisitions or take-over has said to have happened when the acquirer company buys out majority of the shares of the acquired company and the ownership of the assets and liabilities of the acquired company get transferred to the acquirer company. The process of acquisition or take-over may be conducted in both friendly and hostile manner depending upon the specific strategy of the acquirer.

Friendly takeover

In a friendly takeover, the targetâs board and management recommend shareholdersâ approval. To gain control, the acquiring company usually will offer a premium to the current stock price. The excess of the price over the targetâs premerger share price is called a purchase premium and can vary widely by country, which reflects the perceived value of obtaining a controlling interest in the target, the value of expected synergies resulting from combining the two entities and any overpayment of the target firm. Acquirers often prefer friendly takeovers because the post-merger integrations process in usually more expeditious when both parties are cooperating fully and customer, employee attrition is less.

Hostile takeover

A Hostile takeover occurs when the offer is unsolicited, the approach was contested by the targetâs management and control changed hands. The acquirer prefers hostile mode rove the friendly mode only when it becomes possible to acquire the shares in a friendly mode. The acquirer may attempt to circumvent management by offering to buy shares directly from the targets from the targetâs shareholders and buy shares in a public stock exchange. A hostile takeover can be accomplished through either a tender offer or a proxy fight.

The Pros to a merge and an acquisition is that both types of transactions include the potential increase in the competitiveness, cost-efficiency and stock value of the new enterprise. And with everything pro there has to be Cons. One disadvantage of these transactions; it could be very expensive. A significant amount of capital typically must be raided before entering negotiations. Another mergers drawback is that there is now a new owner, co-owners, in which they must now collaborate.

In conclusion any entity or entities that have chosen to merge or entering an acquisition should consider prior to move. Identify the goals of acquisition clearly, if the move is a good fit and what conditions must be met for the pursing the merge or the acquisition. An in-depth due diligence must occur; the financial records must be thoroughly examined, is the marketplace a profitable absolute, as well as the senior executives should also be conducted. There could be potential for disaster if all areas are not explored. Negotiation process is should have clear written rules and guidelines before following through with the merger or acquisition. Assembling an acquisition team can be very valuable to the success of the new owners. The team will be able to define the responsibilities of each company; considering all parties are in agreement with the new implementations such as computer systems, new HR policies and so forth. Lastly, be flexible and ready for unexpected surprises and have a supplemental plan in case of potential disasters.

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33:390:400 Lecture Notes - Lecture 8: Tender Offer, Bellsouth, Nbcuniversal

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