11 Apr 2012
School
Department
Course
Professor
Commerce 3FA3
Chapter 23: Mergers and Acquisitions
The Legal Forms of Acquisitions
Amalgamations: Combinations of firms that have been joined by merger, consolidation, or acquisition
Merger: The complete absorption of one company by another, where the acquiring firm retains its identity
and the acquired firm ceases to exist as a separate entity
Consolidation: A merger in which a new firm is created and both the acquired and acquiring firm cease to
exist
Tender offer: A public offer by one firm to directly buy the shares from another firm
Circular bid: Corporate takeover bid communicated to the shareholders by direct mail
Stock exchange bid: Corporate takeover bid communicated to the shareholders through a stock exchange
Proxy contests: Attempts to gain control of a firm soliciting a sufficient number of shareholder votes to
replace existing management
Going-private transactions: a private group replaces all publicly owned stock in a firm with complete equity
ownership
Leveraged buyouts (LBOs): Going-private transactions in which a large percentage of the money used to
buy the stock is borrowed. Often, incumbent management is involved.
Strategic alliance: Agreement between firms to cooperate in pursuit of a joint goal
Joint venture: Typically an agreement between firms to create a separate, co-owned entity established to
pursue a joint goal
Synergy: The positive incremental net gain associated with the combination of two firms through a merger
or acquisition
Earnings per share (EPS): Net income – any cash dividends on preferred stock, divided by the number of
shares of stock outstanding
Diversification: Investment in more than one asset; returns do not move proportionally in the same
direction at the same time, thus reducing risk
Corporate governance: Rules and practices relating to how corporations are governed by management,
directors, and shareholders
Control block: An interest controlling 50 percent of outstanding votes plus one; thereby it may decide the
fate of the firm
Greenmail: A targeted stock repurchase where payments are made to potential bidders to eliminate
unfriendly takeover attempts
Poison pill: A financial device designed to make unfriendly takeover attempts unappealing, if not impossible
Shareholder rights plan: Provisions allowing existing shareholders to purchase stock at some fixed price
should an outside takeover bid take place, discouraging hostile takeover attempts
Divestiture: The sale of assets, operations, divisions, and/or segments of a business to a 3rd party
Equity carve-out: The sale of stock in a wholly owned subsidiary via an IPO
Spin-off: The distribution of shares in a subsidiary to existing parent company shareholders
Split-up: The splitting up of a company into 2 or more companies