A larger firm may be able to reduce its per unit cost by using excess capacity or spreading fixed costs across more units... Control over suppliers “may” reduce costs. Over integratio
Trang 1 Mergers
Slides by
Trang 2 Some Dubious Reasons for Mergers
Estimating Merger Gains and Costs
The Mechanics of a Merger
Takeover Battles
Mergers and the Economy
Trang 3Selling Company Acquiring Company Payment, billions of dollars
NYNEX Bell Atlantic 21.0 McDonnell Douglas Boeing 13.4 Digital Equipment Compaq Computer 9.1 Schweizerischer Union Bank of Swiz 23.0 Energy Group PCC Texas Utilities 11.0 Amoco Corp British Petroleum 48.2 Sun America American Intl 18.0 BankAmerica Corp Nationsbank Corp 61.6 Chrysler Daimler-Benz 38.3 Bankers Trust Corp Deutsche Bank AG 9.7 Netscape America Online 4.2 Citicorp Travelers Group Inc 83.0
Trang 4A larger firm may be able to reduce its per unit cost by using excess capacity or spreading fixed costs across more units.
Reduces costs
Trang 5 Control over suppliers “may” reduce costs.
Over integration can cause the opposite effect
Trang 6 Control over suppliers “may” reduce costs.
Over integration can cause the opposite effect
Pre-integration (less efficient)
Company
S
S
S
S
S
S S
Trang 7 Control over suppliers “may” reduce costs.
Over integration can cause the opposite effect
Pre-integration (less efficient)
Company
S
S
S
S
S
S S
Post-integration (more efficient)
Company
S
Trang 8Merging may result in each firm filling in the
“missing pieces” of their firm with pieces from the other firm
Firm A
Firm B
Trang 9Merging may result in each firm filling in the
“missing pieces” of their firm with pieces from the other firm
Firm A
Firm B
Trang 10If your firm is in a mature industry with few, if any, positive NPV projects available, acquisition may be the best use of your funds
Trang 11 Investors should not pay a premium for diversification since they can do it themselves
Trang 12Acquiring Firm has high P/E ratio
Trang 13Acquiring Firm has high P/E ratio
Selling firm has low P/E ratio (due to low number of shares)
Trang 14Acquiring Firm has high P/E ratio
Selling firm has low P/E ratio (due to low number of shares)
After merger, acquiring firm has short term
EPS rise
Trang 15Acquiring Firm has high P/E ratio
Selling firm has low P/E ratio (due to low number of shares)
After merger, acquiring firm has short term
EPS rise
Long term, acquirer will have slower than normal EPS growth due to share dilution.
Trang 16Earnings per
dollar invested
(log scale)
Now Time
.10 067 05
Muck & Slurry World Enterprises (before merger)
World Enterprises (after merger)
Trang 17 Is there an overall economic gain to the merger?
Do the terms of the merger make the company and its shareholders better off?
????
PV(AB) > PV(A) + PV(B)
Trang 18Economic Gain = PV(increased earnings)
discount rate
Trang 19a target company threatened by an unwelcome suitor
Shark Repellent - Amendments to a company charter
made to forestall takeover attempts
Poison Pill - Measure taken by a target firm to avoid
acquisition; for example, the right for existing shareholders to buy additional shares at an attractive price if a bidder acquires a large holding