武汉理工大学：《财务管理》课程PPT教学课件（英文版）Chapter 23 Mergers and Other Forms of Corporate Restructuring

Chapter 23 Mergers and other Forms of Corporate Restructuring 23-1

23-1 Chapter 23 Mergers and Other Forms of Corporate Restructuring

Mergers and Other Forms of Corporate Restructuring Sources of value Strategic Acquisitions Involving Common Stock Acquisitions and Capital Budgeting Closing the Deal 23-2

23-2 Mergers and Other Forms of Corporate Restructuring Sources of Value Strategic Acquisitions Involving Common Stock Acquisitions and Capital Budgeting Closing the Deal

Mergers and Other Forms of Corporate Restructuring Takeovers, Tender offers and Defenses Strategic Alliances Divestiture Ownership Restructuring Leveraged Buyouts 23-3

23-3 Mergers and Other Forms of Corporate Restructuring Takeovers, Tender Offers, and Defenses Strategic Alliances Divestiture Ownership Restructuring Leveraged Buyouts

Why Engage in Corporate Sales enhancement and operating economies* Improved management Information effect Wealth transfers Tax reasons Leverage gains Hubris hypothesis Managementfa personal agenda 23-4 Will be discussed in more detail in slides 23-5 and 23-6

23-4 Why Engage in Corporate Restructuring? Sales enhancement and operating economies* Improved management Information effect Wealth transfers Tax reasons Leverage gains Hubris hypothesis Management抯 personal agenda * Will be discussed in more detail in slides 23-5 and 23-6

Sales Enhancement and Operating Economias n Sales enhancement can occur because of market share gain, technological advancements to the product table, and filling a gap in the product line n Operating economies can be achieved because of the elimination of duplicate facilities or operations and personnel n Synergy -Economies realized in a merger where the performance of the combined firm exceeds that of its previously separate parts 23-5

23-5 Sales Enhancement and Operating Economies Sales enhancement can occur because of market share gain, technological advancements to the product table, and filling a gap in the product line. Operating economies can be achieved because of the elimination of duplicate facilities or operations and personnel. Synergy -- Economies realized in a merger where the performance of the combined firm exceeds that of its previously separate parts

Sales Enhancement and Operating Economic Economies of scale the benefits of size n which the average unit cost falls as volume increases o Horizontal merger: best chance for economies n Vertical merger: may lead to economies n Conglomerate merger: few operating economies o Divestiture: reverse synergy may occur 23-6

23-6 Sales Enhancement and Operating Economies Horizontal merger: best chance for economies Vertical merger: may lead to economies Conglomerate merger: few operating economies Divestiture: reverse synergy may occur Economies of scale -- The benefits of size in which the average unit cost falls as volume increases

Strategic Acquisitions Involving Common Stock Strategic Acquisition -Occurs when one company acquires another as part of its overall business strateg y When the acquisition is done for common stock, a fatio of exchange ? which denotes the relative weighting of the two companies with regard to certain key variables, results A financial acquisition occurs when a buyout firm is motivated to purchase the company(usually to sell assets, cut costs, and manage the remainder more efficiently), but keeps it as a stand-alone entity 23-7

23-7 Strategic Acquisitions Involving Common Stock When the acquisition is done for common stock, a 搑atio of exchange,?which denotes the relative weighting of the two companies with regard to certain key variables, results. A financial acquisition occurs when a buyout firm is motivated to purchase the company (usually to sell assets, cut costs, and manage the remainder more efficiently), but keeps it as a stand-alone entity. Strategic Acquisition -- Occurs when one company acquires another as part of its overall business strategy

Strategic Acquisitions Involving Common Stock Example-Company A will acquire Company B with shares of common stock Company a Company B Present earnings $20,000000 $5,000,000 Shares outstanding 5,000.000 2,000,000 Earnings per share $400 $250 Price per share $6400 $3000 Price /earnings ratio 16 12 23-8

23-8 Strategic Acquisitions Involving Common Stock Example -- Company A will acquire Company B with shares of common stock. Present earnings $20,000,000 $5,000,000 Shares outstanding 5,000,000 2,000,000 Earnings per share $4.00 $2.50 Price per share $64.00 $30.00 Price / earnings ratio 16 12 Company A Company B

Strategic Acquisitions Involving Common Stock Example - Company B has agreed on an offer of $35 in common stock of company A. Surviving Company A Total earnings $25,000,000 Shares outstanding 6,093750 Earnings per share $410 Exchange ratio=$35/$64=. 546875 New shares from exchange =. 546875X 2,000,000 =1.093750 23-9

23-9 Strategic Acquisitions Involving Common Stock Example -- Company B has agreed on an offer of $35 in common stock of Company A. Total earnings $25,000,000 Shares outstanding* 6,093,750 Earnings per share $4.10 Surviving Company A Exchange ratio = $35 / $64 = .546875 * New shares from exchange = .546875 x 2,000,000 = 1,093,750

Strategic Acquisitions Involving Common Stock The shareholders of company a will experlence an Increase In earnings per share because of the acquisition [$4.10 post-merger EPS versus $4.00 pre-merger EPS] The shareholders of Company B will experience a decrease in earnings per share because of the acquisition. [546875X $4.10 $2.24 post-merger EPS versus $2. 50 pre merger EPs 23-10

23-10 Strategic Acquisitions Involving Common Stock The shareholders of Company A will experience an increase in earnings per share because of the acquisition [$4.10 post-merger EPS versus $4.00 pre-merger EPS]. The shareholders of Company B will experience a decrease in earnings per share because of the acquisition. [.546875 x $4.10 = $2.24 post-merger EPS versus $2.50 pre￾merger EPS]