Megers Acquisitions.ppt

Megers Acquisitions Three Areas of Study 1. Determining if a Merger creates value (then developing an offer price) 2. Evaluating MA offers in the market place (your case analysis assignment) 3. MA Strategies (biggest area of “talk”) Megers Acquisitions Three Areas of Study 1. Determining if a Merger creates value (then developing an offer price) 2. Evaluating MA offers in the market place (your case analysis assignment) 3. MA Strategies (biggest area of “talk”) Today - Cover both Part 1 3 via lecture Part 2 via example 1997 and 1998 Mergers Sensible Reasons for Mergers Economies of Scale A larger firm may be able to reduce its per unit cost by using excess capacity or spreading fixed costs across more units. Sensible Reasons for Mergers Economies of Vertical Integration Control over suppliers “may” reduce costs. Over integration can cause the opposite effect. Sensible Reasons for Mergers Economies of Vertical Integration Control over suppliers “may” reduce costs. Over integration can cause the opposite effect. Sensible Reasons for Mergers Economies of Vertical Integration Control over suppliers “may” reduce costs. Over integration can cause the opposite effect. Sensible Reasons for Mergers Combining Complementary Resources Merging may results in each firm filling in the “missing pieces” of their firm with pieces from the other firm. Sensible Reasons for Mergers Combining Complementary Resources Merging may results in each firm filling in the “missing pieces” of their firm with pieces from the other firm. Sensible Reasons for Mergers Mergers as a Use for Surplus Funds If your firm is in a mature industry with few, if any, positive NPV projects available, acquisition may be the best use of your funds. Dubious Reasons for Mergers Diversification Investors should not pay a premium for diversification since they can do it themselves. MA Q: Does MA create Value? A: if PVAB PVA + PVB Q: If MA creates value, Why? A: Synergies -Admin