FNCE 251 Lecture Notes - Lecture 12: Stock Dilution, Bell State, Cash Flow
Document Summary
Corporate m&a activity comes and goes in waves. Deal values are up 37% since 2015, but in general, the peak value of deals were higher in the past. Reasons for peaks: economy is doing well, public bidders a(cid:396)e(cid:374)"t as (cid:396)est(cid:396)i(cid:272)ted (cid:271)(cid:455) the fi(cid:374)a(cid:374)(cid:272)ial (cid:373)a(cid:396)ket (cid:271)e(cid:272)ause the(cid:455) (cid:272)a(cid:374) p(cid:396)i(cid:374)t (cid:373)o(cid:396)e sto(cid:272)k, the(cid:396)e(cid:271)(cid:455) i(cid:374)(cid:272)(cid:396)easi(cid:374)g. Does m&a create value: yes- because people paying premiums is evidence that these transactions create value, no- because incentives of manage(cid:396)s a(cid:396)e(cid:374)"t alig(cid:374)ed (cid:449)ith o(cid:448)e(cid:396)all pu(cid:271)li(cid:272)"s i(cid:374)(cid:272)e(cid:374)ti(cid:448)es, median offer premiums = 30% (above market price) Reasoning: synergies will make it worth it: bidder gains are actually only 1%, meaning that the people being sold win, not the buyers. Smaller bidders tend to have positive returns when targeting public targets. Large bidders buying public targets tend to have negative announcement returns: regardless of bidder size, buying private targets tend to have positive announcement returns. Definition: means the target is a public company.
