韩山师范学院财务管理课件第二十章 External Growth through Mergers.ppt

Chapter 20 External Growththrough Mergers Chapter 20 - Outline LT 20-1 Mergers vs. Consolidations Why Merge? 3 Types of Mergers Motives of Selling Stockholders Terms of Exchange Negotiated vs. Tender Offers Wall Street Takeover Terminology Mergers vs. Consolidations LT 20-2 A business combination can be either a merger or a consolidation Merger: a combination of 2 or more companies where the resulting firm keeps the identity of the acquiring company Consolidation: when 2 or more companies are combined to form an entirely new entity Why Merge? LT 20-3 Financial motives: –to reduce risk (the portfolio effect) – to increase operating efficiency – to improve access to financial markets – to obtain a tax carry-forward benefit Nonfinancial motives: – to expand marketing and management capabilities – to allow for new product development – to provide synergistic benefits (the “2+2=5” effect) 3 Types of Mergers LT 20-4 Horizontal Merger: – unites direct competitors – ex., 2 shoe companies combine Vertical Merger: – unites buyers and sellers – ex., a shoe manufacturer buys a leather producer Conglomerate Merger: – merging of firms in totally unrelated industries – ex., a shoe company joins with a beverage company Motives of Selling Stockholders LT 20-5 Desire to receive the acquiring firm’s stock which may have greater acceptability in the market Provides stockholders an opportunity to diversify their holdings Gain on sale of the stock at an attractive price Officers of selling company may receive attractive postmerger management contracts and directorships in the acquiring firm Avoids the bias against smaller businesses Terms of Exchange LT 20-6 Cash Purchases: takes on many characteristics of a classical capital budgeting decision Stock-For-Stock Exchange: often a trade-off between an immediate gain or dilution in EPS and future growth Negotiated vs. Tender Offers LT 20-7 Negotiated Offer: – a “friendly”