Professional Documents
Culture Documents
Mergers, Acquisitions, and Corporate Control: Fundamentals of Corporate Finance
Mergers, Acquisitions, and Corporate Control: Fundamentals of Corporate Finance
Fundamentals of
Corporate Mergers, Acquisitions,
Finance and Corporate Control
Fifth Edition
Slides by
Matthew Will
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 2
Topics Covered
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 3
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 4
Recent Mergers
Payment
Acquiring Company Selling Company ($ billions)
JP Morgan Chase Bank One Corp 58.8
Proctor & Gamble Gillette Co. 57.0
Bank of America Corp. FleetBoston Financial Grp 49.3
Cingular Wireless AT&T Wireless 41.0
Sprint Corp. Nextel Communications 35.2
Johnson & Johnson Guidant Corp. 25.4
ChevronTexaco Unocal Corp. 16.4
Anthem Inc. WellPoint Health Networks 16.4
SBC Corp. AT&T Corp. 16.0
Verizon MCI 8.5
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 5
Acquisition Merger
Leveraged Management
Buy-Out Buy-Out
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 6
Reduces costs
$
McGraw-Hill/Irwin
$ $
Pre-integration Post-integration
(less efficient) (more efficient)
Company Company
S S
S S
S
S S
S
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 8
Firm A
Firm B
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 9
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 10
Diversification
Investors should not pay a premium for
diversification since they can do it themselves.
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 11
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 12
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 13
Evaluating Mergers
Questions
Isthere 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)
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 14
Evaluating Mergers
Economic Gain
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 15
Evaluating Mergers
Example - Given a 20% cost of funds, what is the
economic gain, if any, of the merger listed below?
4
Economic Gain = = $ 20
.20
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 16
Evaluating Mergers
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 17
Merger Tactics
White Knight - Friendly potential acquirer sought
by a 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.
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 18
Leveraged Buy-Outs
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
21- 19
Leveraged Buy-Outs
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved