上海交通大学：《公司金融学 Corporate Finance》课程教学资源（英文课件）09 Mergers and Acquisitions

Chapter 9 Mergers and Acquisitions

Chapter 9 Chapter 9 Mergers and Acquisitions Mergers and Acquisitions

Varieties of Takeovers Merger or consolidation Acquisition Acquisition of Stock Takeovers Proxy Contest Acquisition of Assets Going Private (LBO) slide 1

slide 1 Varieties of Takeovers Varieties of Takeovers Takeovers Acquisition Proxy Contest Going Private (LBO) Merger or consolidation Acquisition of Stock Acquisition of Assets

Going Private and LBOs If the existing management buys the firm from the shareholders and takes it private If it is financed with a lot of debt,it is a leveraged buyout (LBO). The extra debt provides a tax deduction for the new owners,while at the same time turning the pervious managers into owners. This reduces the agency costs of equity slide 2

slide 2 Going Private and Going Private and LBOs ƒ If the existing management buys the firm from the shareholders and takes it private. ƒ If it is financed with a lot of debt, it is a leveraged buyout (LBO). ƒ The extra debt provides a tax deduction for the new owners, while at the same time turning the pervious managers into owners. ƒ This reduces the agency costs of equity

The Basic Forms of Acquisitions There are three basic legal procedures that one firm can use to acquire another firm: Merger Acquisition of Stock Acquisition of Assets slide 3

slide 3 The Basic Forms of Acquisitions The Basic Forms of Acquisitions ƒ There are three basic legal procedures that one firm can use to acquire another firm: – Merger – Acquisition of Stock – Acquisition of Assets

Takeovers Merger the absorption of one firm Consolidation a new firm is created Acquisition of stock private offer,tender offer Acquisition of asset Proxy contest voting right Going private be purchased by a small group of investors slide 4

slide 4 Takeovers Takeovers ƒ Merger – the absorption of one firm ƒ Consolidation – a new firm is created ƒ Acquisition of stock – private offer, tender offer ƒ Acquisition of asset ƒ Proxy contest – voting right ƒ Going private – be purchased by a small group of investors

A classification Scheme ■ Horizontal Acquisition --in the same industry Vertical Acquisition --at the different steps of the production process Conglomerate Acquisition -not related to each other slide 5

slide 5 A classification Scheme A classification Scheme ƒ Horizontal Acquisition -- in the same industry ƒ Vertical Acquisition -- at the different steps of the production process ƒ Conglomerate Acquisition -- not related to each other

The tax forms of acquisitions Bill Evans started SM 15 years ago and buy the equipment by $80,000.The assets have been depreciated using the straight-line method over 10 years and have no salvage value.Because of inflation,the fair market value of the machinery is $200,000.Another company has bid $200,000 for all of the outstanding stock of SM. slide 6

slide 6 The tax forms of acquisitions The tax forms of acquisitions Bill Evans started SM 15 years ago and buy the equipment by $80,000. The assets have been depreciated using the straight-line method over 10 years and have no salvage value. Because of inflation, the fair market value of the machinery is $200,000. Another company has bid $200,000 for all of the outstanding stock of SM

Accounting for Acquisitions ■Firm A Cash 4 Equity 20 Land 16 Building 0 Total 20 20 Firm B Cash 2 Equity 10 Land 0 Building 8 Total 10 10 slide 7

slide 7 Accounting for Acquisitions Accounting for Acquisitions ƒ Firm A Cash 4 Equity 20 Land 16 Building 0 Total 20 20 ƒ Firm B Cash 2 Equity 10 Land 0 Building 8 Total 10 10

The purchase method The purchase method of reporting acquisitions requires that the assets of the acquired firm be reported at their fair market value on the books of the acquiring firm. Firm AB Cash 6 Debt 19 Land 16 Equity 20 Building 14 Goodwill 3 Total 39 39 slide 8

slide 8 The purchase method The purchase method ƒ The purchase method of reporting acquisitions requires that the assets of the acquired firm be reported at their fair market value on the books of the acquiring firm. ƒ Firm AB Cash 6 Debt 19 Land 16 Equity 20 Building 14 Goodwill 3 Total 39 39

Pooling of Interests The assets of the new firm are valued at the same level at which they were carried on the books of the acquired and acquiring firms. Firm AB Cash 6 Equity 30 Land 16 Building 8 Total 30 30 slide 9

slide 9 Pooling of Interests Pooling of Interests ƒ The assets of the new firm are valued at the same level at which they were carried on the books of the acquired and acquiring firms. ƒ Firm AB Cash 6 Equity 30 Land 16 Building 8 Total 30 30