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    Mergers, Lbos, Divestitures, and Holding Companies

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    Rainhard Saliama
    This document discusses mergers and acquisitions. It begins by outlining the main reasons for mergers as diversification, purchasing assets at below replacement cost, and increasing size to deter acquisitions. Mergers are also justified by synergies from operating economies, financial economies, differential management efficiency, and taxes. The main types of mergers are defined as vertical, horizontal, congeneric, and conglomerate. The document differentiates between hostile and friendly mergers and examines whether mergers truly create value. It then defines leveraged buyouts and divestitures before concluding with a description of holding companies.

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    Mergers, Lbos, Divestitures, and Holding Companies

    Uploaded by

    Rainhard Saliama
    31 views10 pages
    This document discusses mergers and acquisitions. It begins by outlining the main reasons for mergers as diversification, purchasing assets at below replacement cost, and increasing size to deter acquisitions. Mergers are also justified by synergies from operating economies, financial economies, differential management efficiency, and taxes. The main types of mergers are defined as vertical, horizontal, congeneric, and conglomerate. The document differentiates between hostile and friendly mergers and examines whether mergers truly create value. It then defines leveraged buyouts and divestitures before concluding with a description of holding companies.

    Original Description:

    merger

    Original Title

    Merger Ch 21

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    This document discusses mergers and acquisitions. It begins by outlining the main reasons for mergers as diversification, purchasing assets at below replacement cost, and increasing size to deter acquisitions. Mergers are also justified by synergies from operating economies, financial economies, differential management efficiency, and taxes. The main types of mergers are defined as vertical, horizontal, congeneric, and conglomerate. The document differentiates between hostile and friendly mergers and examines whether mergers truly create value. It then defines leveraged buyouts and divestitures before concluding with a description of holding companies.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    31 views10 pages

    Mergers, Lbos, Divestitures, and Holding Companies

    Uploaded by

    Rainhard Saliama
    This document discusses mergers and acquisitions. It begins by outlining the main reasons for mergers as diversification, purchasing assets at below replacement cost, and increasing size to deter acquisitions. Mergers are also justified by synergies from operating economies, financial economies, differential management efficiency, and taxes. The main types of mergers are defined as vertical, horizontal, congeneric, and conglomerate. The document differentiates between hostile and friendly mergers and examines whether mergers truly create value. It then defines leveraged buyouts and divestitures before concluding with a description of holding companies.

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    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 10

    MERGERS, LBOS, DIVESTITURES,

    AND HOLDING COMPANIES

    Ch 21

    WHAT ARE THE REASONS FOR


    MERGERS?
    Diversification
    Purchase

    cost

    of assets at below replacement

    Increase

    size, thus making it more


    difficult to be acquired

    WHAT ARE THE JUSTIFICATIONS


    FOR MERGERS?
    Synergy:

    :
    Operating economies
    Financial economies
    Differential management efficiency
    Taxes (use accumulated losses)
    Break-up value

    MERGER TYPES
    Vertical

    Congeneric

    Related

    but not same industry


    Conglomerate
    Unrelated enterprises

    26-4

    Horizontal

    DIFFERENTIATE BETWEEN
    HOSTILE AND FRIENDLY MERGERS
    Friendly merger:
    The merger is supported by the managements
    of both firms.
    Hostile merger:
    Target firms management resists the merger.
    Acquirer must go directly to the target firms
    stockholders, try to get 51% to tender their
    shares.
    Often, mergers that start out hostile end up as
    friendly, when offer price is raised.

    DO MERGERS REALLY CREATE


    VALUE?
    According

    to empirical evidence,
    acquisitions do create value as a result of
    economies of scale, other synergies, and/or
    better management.
    Shareholders of target firms reap most of
    the benefits, that is, the final price is close
    to full value.
    Target

    management can always say no.


    Competing bidders often push up prices.

    WHAT IS A LEVERAGED BUYOUT


    (LB0)?
    In

    an LBO, a small group of investors,


    normally including management, buys all of
    the publicly held stock, and hence takes the
    firm private.

    Purchase

    often financed with debt.

    After

    operating privately for a number of


    years, investors take the firm public to cash
    out.
    7

    WHAT IS A DIVESTITURES?

    Sale of an entire subsidiary to another firm.

    Outright liquidation of assets.

    WHAT MOTIVATES FIRMS TO


    DIVEST ASSETS?
    Subsidiary

    worth more to buyer than


    when operated by current owner.
    To settle antitrust issues.
    Subsidiarys value increased if it operates
    independently.
    To change strategic direction.
    To get needed cash when distressed.
    9

    WHAT ARE HOLDING


    COMPANIES?
    A

    holding company is a corporation


    formed for the sole purpose of owning the
    stocks of other companies.

    In

    a typical holding company, the


    subsidiary companies issue their own
    debt, but their equity is held by the
    holding company,
    10

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