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MERGERS AND ACQUISITIONS

MERGERS AND ACQUISITIONS. MK, UNIT 21. MERGERS AND ACQUISITIONS. PricewaterhouseCoopers GlaxoSmithKline America Online & Time Warner. Volkswagen →Porsche HewlettPackard → Vertica Agrokor →Mercator?. WHY MERGERS AND TAKEOVERS?. … to add shareholder value through: economies of scale

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MERGERS AND ACQUISITIONS

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  1. MERGERS AND ACQUISITIONS MK, UNIT 21

  2. MERGERS AND ACQUISITIONS PricewaterhouseCoopers GlaxoSmithKline America Online & Time Warner Volkswagen→Porsche HewlettPackard→Vertica Agrokor→Mercator?

  3. WHY MERGERS AND TAKEOVERS? … to add shareholder value through: • economies of scale • increased revenue/increased market share • cross selling • synergy • taxes • geographical or other diversification

  4. MERGER Two or more companies join together to form a larger company. TAKEOVERORACQUISITION One company buys another one, or buys part of another one. Itmakes a takeoverbid, i.e. offersto buy all shareholders’ shares at a certainpriceduring a limited period of time. RAID Buyingas manyshares as possible on thestockmarket, hoping to gain a majority.

  5. FRIENDLY TAKEOVER A takeover that a company being taken over agrees to. HOSTILE TAKEOVER A takeover that a company taken over does not want and doesn’t agree to. INVESTOPEDIA VIDEO:Hostiletakeover

  6. HOME ASSIGNMENTDEFENSE AGAINST A HOSTILE BID

  7. BIDDING COMPANY OR THE TARGET COMPANY? • acquiresanothercompany • wants to betakenover • launchesa bid • acceptsa bid • defendsitselfagainst a hostiletakeoverbid • rejectsa bid

  8. INTEGRATION HORIZONTAL INTEGRATION Acquiring a competitor in the same field of activity. VERTICAL INTEGRATION Acquiring a business in other parts of supply chain.

  9. IF VERTICAL… BACKWARD INTEGRATION Buying suppliers of raw materials or components. FORWARD INTEGRATION Buying distributors or retailoutlets.

  10. EXAMPLES A car company that expands into tire manufacturing? A brewery buys a pub? Mlinar buys a wheat producer?

  11. CONGLOMERATES A large parent company controlling a number of subsidiaries in different business areas. PROBLEMS Inefficient, not focused on core activity, lacking synergy →low stock price i.e. market capitalization is lower than the value of its assets, e.g. land, buildings, pension funds…

  12. LEVERAGED BUYOUT (LBO) leveraged = financedfromborrowedcapital A company borrowsfundsbyissuing… bonds or takingout… a loan. Itusesthe company’s assets as a… collateral. Onceitbuysthecompanyitsellsoff… the assets to repay… the debt. This is calledasset-… stripping.

  13. ORDER THE EVENTS • Raiders calculate that a large company is undervalued. • Investors buy the bonds because they pay a high interest rate. • The new owners sell some of the company’s subsidiaries. • The new owners repay the bondholders. • The raiders buy the company. • The raiders issue bonds to raise capital to buy the company.

  14. ORDER THE EVENTS • Raiders calculate that a large company is undervalued. • The raiders issue bonds to raise capital to buy the company. • Investors buy the bonds because they pay a high interest rate. • The raiders buy the company. • The new owners sell some of the company’s subsidiaries. • The new owners repay the bondholders. Source: Professional English In Use Finance MK

  15. FINISH THE SENTENCE • Largeconglomeratesformedbytakeovers… • Aninefficientconglomerate’s stockmarketvalue… • If a conglomerate is worthlessthanitsassets,… • Raiders do nothave to havetheir own moneyif… Source: Professional EnglishInUseFinanceMK

  16. READING, p. 105 P1 • How do successful companies use profits? • Who is usually the target company in horizontal integration? • When do mergers occur? • Why is vertical integration undertaken?

  17. P2 • What is a raid? • What does a raid usually cause? • Do raids typically result in the acquisition of a controlling interest? • What do companies launch when they want to acquire a controlling interest in the target company? • What makes a takeover friendly or hostile? P3 • What is the role of banks in M&As?

  18. P4 • Why did LBOstarget conglomerates in the USA in the 1980s? • Explain “market capitalization is lower than the value of its total assets” • How do raiders actually earn money in LBOs? P5 • What reputation do private equity funds have today? Vocabulary Comprehension

  19. Gordon GekkoWallstreet(1987, O. Stone) The point is ladies and gentlemen that greed, for lack of a better word, is good. Why do you need to wreck this company? Because it's WRECKABLE, all right?

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