...Contents 1. Evaluate the rationale for the merger................................................................................. 1 2. Relative merits of a merger and an acquisition ................................................................. 2 3. Present value of the gains from merger and costs of capital.............................................. 4 4. Exchange ratio for the shares ............................................................................................ 6 5. Reference list...................................................................................................................... 8 Tables Table 1: Cash-flows................................................................................................................ 6 Table 2: Discounted cash-flows ............................................................................................. 6 Table 3: Banks strengths in comparison................................................................................. 7 1. Evaluate the rationale for the merger After a period of record number of bank failures during the 1980s, the Banking Industry entered a period of record profits in the 1990s. Also the industry saw a large number of bank mergers that pointed out a new trend, leading to more concentrated and bigger banks holding a majority of total banks assets. Following this trend a Chemical/Chase merger became attractive. By accomplishing this merger Chase Manhattan would grow to the...
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...MERGERS AND ACQUISITIONS LITERATURE REVIEW LUKE WALTON Table of Contents Abstract 3 Introduction 3 Background and motivation 3 Objective or aim of this literature review 4 Findings from current available literature 4 Issues from current research 5 Contribution to current literature and stakeholders 5 Section One 6 Motivation of M&A’s 6 Synergy 6 Agency theory 7 Hubris 7 Relationship between motives and financing 8 Section Two 9 Payment methods 9 Financing hierarchy vs. market conditions 9 Differing views on leverage 10 Valuation and the agency problem 10 Managerial ownership 11 Section Three 12 Performance of mergers and acquisitions 12 Performance indicators 12 Methodology 13 Profitability 13 Performance due to the motivation 14 Conclusion 15 Summary and findings 15 Areas of future research 17 Qualitative research in M&A’s 17 Decision making process for methods of payment 17 Unified methodology in determining M&A performance 17 References 19 Abstract Mergers and acquisitions have become a common practice for firms as a mean to expand and increase profitability. Existing evidence is still unable to strongly determine what factors make a successful M&A due to inconsistency in data and findings. This paper aims to provide an insight to the steps included in the M&A process by comparing existing literature and hopes to suggest key determinants of a successful M&A transaction. Evidence shows...
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...|Merger and Acquisition | INDEX |S.NO |Contents |Page No. | |1 |Abstract |3 | |2 |Introduction |4 | |3 |Types of Mergers |4 | |4 |Reasons for Mergers and Acquisition |5 | |5 |Advantages of Mergers and Acquisition |7 | |6 |Failure of Mergers and Acquisition |10 | |7 | Making it Happen |13 | |8 |Conclusion |14 | |9 |Bibliography |15 | Abstract: As a corporate strategy, Mergers and Acquisition have been used to expand size and growth of business. In this report this corporate strategy is investigated...
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...Introduction Currently, Mergers and Acquisition strategy has been significant growth in term of amount and size of organization (Hitt, Harrison, and Ireland, 2001). Since 1980s, the total value of M&A is approximately 1.3 million million dollar and has a huge of increasing amount more than 11 million million dollar in 1990s. The important reason most of companies do merger and acquisition is to empower in market, more opportunities to access not enough/less own resource of company, more powerful in negotiate with supplier and customer, expand distribution channel, also reducing cost of production risk or new service that company has not enough capability to generate. Moreover, Mergers and Acquisition could limit ability of competitor and hurdle competitor to do business as well as reducing cost of operation because Mergers and acquisition make company expansion. As a result, it could possible to advantage in scale and scope (B.Elango 2006). For acquired companys, they would gain the advantage in term of financial condition because they usually gain capital meaning stronger in company financial. However, there are some considering factors about the problem of internal management after acquiring or merging such as organizational culture, the risk or failure with wrong set objective. These might be effected to operate business in the future. Mergers and Acquisition could be influenced in different groups both company and acquirer. Thus, it is necessary to consider...
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...and actions that are used by firms to achieve a competitive advantage. The firms utilize core competencies in certain product markets. Under this strategy, firms specify their choices on how they plan to compete in individual product markets. It’s important that every firm develop a business-level strategy to create differences between its position and its competitors’ positions. The relationship between customers and business-level strategies is very important because customers are the source of the strategy’s success. It’s imperative that the firm differentiate who the customer will be (market segmentation), what are the customers’ needs, and how the company plans on satisfying the customers’ needs with core competencies. The relationship that a firm develops with its customers creates value and profitability. There are five business-level strategies that a firm can use to create and support its preferred strategic position against competitors. These include cost leadership, differentiation, focused cost leadership, focused differentiation, and integrated cost leadership/differentiation. Chapter 6 discusses these five strategies along with the risks that are associated with each. Chapter 6 discusses corporate level strategies. Corporate-level strategy focuses on the actions a firm takes to achieve a competitive advantage by choosing and managing a collection of different businesses competing in different product markets. These strategies help firms decide on new strategic positions...
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...on the Determinants of Acquisitions Nigel Garrow Introduction Merger and acquisition (M&A) activity is a significant factor in business in most advanced economies. According to Thomson Reuters, the value of M&A deals completed globally during the 12 months to November 2009 was US$1.8 trillion. However, the acquirers’ shareholders often lose value. Much of the literature on M&A is centred on the UK and US markets, with only a modest level of research within Australia This paper suggests a new proposition to explain why M&A activity may be value destroying for the acquirers: Success or failure for the acquiring firm’s shareholders in M&A is a function of the combined tenure, personal motivation, and recent performance of the Chairman and Chief Executive Officer (CEO) of the acquiring firm. This examination of the combined effectiveness of the Chairman and CEO is not something that appears to have been undertaken before. The paper will present the constituent hypotheses of the main proposition, followed by a literature review, a presentation of findings from a pilot study, conclusions and next steps. Four constituent hypotheses, each of which refers to the performance of the Chairman and CEO, arise out of the pilot study: Hypothesis 1. The length of time that the Chairman and CEO of the acquiring firm have been together in their respective positions at the time of the acquisition will determine the success or otherwise of the outcome of the acquisition. Page | 38 Proceedings...
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...1163~1184) Is Cash better than Equity as Takeover Payment? - Learning from Korean Cases Seong-Ho Cho Professor, College of Business Administration Hongik University (shcho11@hongik.ac.kr) ……………………………………………………………………………… This paper examines the relationship between the abnormal stock returns upon announcement and the choice of takeover payment methods, say, cash or equity, for the Korean mergers and acquisitions during 1996-2008 in which for some period, say, 1996-2000, liquidity is very scarce and market is uncertain. We test two hypotheses; first, whether equity payments reduce bidders’ firm value; second, whether cash payments are more (or less) likely preferred by the target shareholders who are facing high uncertainty. Unlike US experience, we fail to find statistical evidence that equity offers reduce bidders’ firm value. Further, while the bidder shareholders gain on average wealth of 1.8% from the M&A transactions, whether they pay in cash or equity, they earn positive 0.1% or 3.5% gain, respectively. These results contradict to the conventional asymmetric information model where market valuation of bidder’s equity plays an important role for the determination of payment alternatives. While examining the wealth gains of target shareholders, we find statistical evidence that cash payments are preferred to equity payments. Further, if they are paid by cash (equity), they earn 6.2% (-5.1%) gain. We conclude that under the liquidity-scarce and uncertain situation, cash...
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...CHAPTER 5 – BUSINESS LEVEL STRATEGY Business level strategy – an action plan the firm develops to describe how it will compete in its chosen industy or market segment – how it will compete on a day to day basis – purpose is to create value for target customers in an area more than anyone else, most effective when everyone understands it (clear, specific statement of value) and it is implemented with zeal and efficiency. It is a function of the basic of competitive advantage (in cost or performance characteristics/uniqueness) and competitive scope (breadth of target market it wishes to serve) Types: 1. Cost leadership – broad, large share of market segment – action plan to produce goods/services at the lowest cost, standardized products appeal to the “average” consumer – must keep primary and support activities such as production, distribution, service costs low a. usually firms have well established economies of scale – continuously improving efficiencies in operations etc. to drive costs lower and lower – difficult for potential entrants b. Also usually have strong engineering skills, efficient manufacturing processes, access to cheap RMs, and performance evaluation systems that reward employees based on quantity of output c. Outperforming in the value-chain d. Low profit margins – often difficult to compete on the basis of price e. Careful of the bargaining power of buyers (buy a large amount of output) and suppliers (supply a large...
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...8 2. Literature Review 8 2.1. Introduction 8 2.2. The concept of sustainable competitive advantage 9 2.3. The concept of knowledge 12 2.4. Knowledge Acquisition, Sharing and Competitive Advantage 14 3. Chapter Three 17 3.1. Research Methodology 17 3.1.1.Introduction 17 3.1.2.Research Design 17 3.1.3.Sample Population 18 3.1.4.Sampling Procedure 19 3.1.5.Data Collection Methods 19 4. Chapter Four 20 4.1. Data Findings, Processing and Analysis 20 4.2. Findings 20 5. Chapter Five 25 5.1. Conclusion 25 6. References 28 Appendix ……...…………………………………………………………………….31 Abstract Small and Medium Size Enterprises’ (SMEs) learning capacity plays a crucial role in generating ingredients necessary for attaining differential performances. Thus, knowledge acquisition and sharing are prerequisites for attaining competitive edge; it is argued above that essentially, organizations operating within a competitive business environment undertake greater knowledge acquisition and sharing through a wider set of learning orientations. There are two paths by which firms can use knowledge to create and sustain its competitive advantage. Firstly, firms can act internally to spread knowledge that other firms will find almost impossible to imitate, which is referred to as tacit knowledge. Secondly, firms can create superior knowledge management capacity, and in so, doing foster competitiveness. This research analyzes how tacit knowledge and exceptional knowledge...
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...level of mergers and acquisitions. Between 1980 and 1998, approximately 8,000 bank mergers occurred, involving about $2.4 trillion in acquired assets that can be attributed to deregulation in the1980s and the removal of legal restrictions on intrastate and interstate banking (Rhoades, 2000). One basis for these mergers is the assumption that such consolidations lead to improvements in efficiency and profits amassed through increased market power, economies of scale, reduced earnings volatility, diversification, and other financial and operational synergies. While proponents of bank mergers argue that these gains are substantial, Coase (1937) tells us that tradeoffs exist between economies of scale (size) and ability to manage. In addition to the significant increase in mergers we have witnessed the collapse of countless financial institutions in the past 3 years due to bad lending practices. While the Coase theory applies to firms in general, how well does it apply to financial institutions? Additionally, has the increased size of financial institutions contributed to the financial crisis of 2008? This paper investigates the economic role of bank mergers in creating shareholder value based on the idea that shareholder wealth will increase if the consolidation leads to the aforementioned gains. This paper is divided into seven sections. The second section of my paper provides an academic review of the literature, focusing on econometric theory that tests the gains in shareholder value...
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...1. Diversification strategy (Scenario) Definition and Example: Specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets. Diversification strategy is expected to help firm earn above-average returns while profit came from different sources of market. Perhaps is also should increase firm overall performance. Value ultimately determined by degree to which the businesses in the portfolio are worth more under the management of the company then they would be under any other ownership. (eg: Types: a. Low Levels Single Business Strategy is Corporate-level strategy in which the firm generates 95% or more of its sales revenue from its core business area (operating in relatively few product markets). Eg: Wrigley only produces chewing and bubble gums. Dominant Business Diversification Strategy is Corporate-level strategy whereby firm generates 70-95% of total sales revenue within a single business area. Eg: UPS generated 61% of its revenue from its US package delivery biz and 22% from its international package biz, with the remaining 17% coming from the firm’s non-package biz. b. Moderate to High Levels Related Constrained Diversification Strategy—Firms generate less than 70% of revenue comes from the dominant business. The firm’s businesses are direct links with each other and share resources and activities between its...
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...CORPORATE-level STRATEGIES: Creating Value through DIVESIFICATION/ACQUISITIONS What is corporate level strategy? CORPORATE/GRAND STRATEGIES are the master of business strategies which are intended to provide basic direction for strategic action. They are seen as the basis for coordinated and sustained efforts directed towards achieving long-term business objectives. Corporate level strategies specify actions a firm takes to gain competitive advantage by selecting and managing a group of differentiated businesses competing in different product market. This lesson addresses the following issues: 1. What is the company’s overall direction? (Stability? Growth? Or retrenchment?) 2. What businesses should a corporation compete in? (Portfolio analysis/ management) 3. How can these businesses can be managed so they create “synergy” – that is more value by working together than if they were freestanding units The Corporate Level Strategies A. Stability Strategy: Maintaining the present course of the organization. Essentially sticking with your current business. 1. Concentration. The most common grand strategy. The firm directs its resources to the profitable growth of a single product, in a single market, and with a single technology. Concentration is typically lowest in risk and needs only few resources. By concentrating on product in one market, and with one technology, a firm can gain competitive advantages over its more diversified competitors in production...
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...CHAPTER 29 Mergers and Acquisitions Multiple Choice Questions: I. DEFINITIONS MERGER a 1. The complete absorption of one company by another, wherein the acquiring firm retains its identity and the acquired firm ceases to exist as a separate entity, is called a: a. merger. b. consolidation. c. tender offer. d. spinoff. e. divestiture. Difficulty level: Easy CONSOLIDATION b 2. A merger in which an entirely new firm is created and both the acquired and acquiring firms cease to exist is called a: a. divestiture. b. consolidation. c. tender offer. d. spinoff. e. conglomeration. Difficulty level: Easy TENDER OFFER c 3. A public offer by one firm to directly buy the shares of another firm is called a: a. merger. b. consolidation. c. tender offer. d. spinoff. e. divestiture. Difficulty level: Easy HORIZONTAL ACQUISITION d 4. The acquisition of a firm in the same industry as the bidder is called a _____ acquisition. a. conglomerate b. forward c. backward d. horizontal e. vertical Difficulty level: Easy 29-1 VERTICAL ACQUISITION e 5. The acquisition of a firm involved with a different production process stage than the bidder is called a _____ acquisition. a. conglomerate b. forward c. backward d. horizontal e. vertical Difficulty level: Easy CONGLOMERATE ACQUISITION a 6. The acquisition of a firm whose business is not related to that of the bidder is called a _____ acquisition. a. conglomerate b. forward c. backward d. horizontal e. vertical Difficulty level: Easy PROXY CONTEST...
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...Kenya. A cartel is a formal (explicit) agreement among competing firms. It’s a formal organization of producers and manufacturers that agree to fix prices, marketing and production. Cartels usually occur in an oligopolistic industry, where there are a small number of sellers and usually involve homogenous products. Cartels members maybe agree on such matters as prices fixing, total industry output, market shares, allocation of customers, allocation of territories and the division of profits. There are either private or public cartels. One can distinguish private cartels from public cartels. In the public cartel a government is involved to enforce the cartel agreement, and the government's sovereignty shields such cartels from legal actions. private cartels are subject to legal liability under the antitrust laws now found in nearly every nation of the world. Many price fixing or market sharing agreements eventually either collapse or whither on the vine - here are some reasons: 1. Falling demand creates excess capacity in the industry e.g. during an economic downturn / recession - the classic example here is the deep tension within the OPEC oil cartel caused by the world economic recession which is causing a steep fall in the global demand for crude oil. Will OPEC deliver on planned output cuts in order to stabilize the price of crude at or around $50 a barrel? 2. Disruption caused by the entry of non-cartel firms into the industry which creates fresh competition. This means that...
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...which two firms agree to integrate their operations on a relatively co-equal basis * Acquisition: a strategy through which one firm buys a controlling, or 100% interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio. After acquisition, management of the acquired firm report s to the management of the acquiring firm * Takeover: a special type of acquisition when the target firm did not solicit the acquiring firm’s bid for outright ownership * Friendly acquisition: the management of the target firm wants the firm to be acquired * Unfriendly acquisition (hostile takeover): the management of the target firm does not want the firm to be acquired (direct negotiations with the firm’s owners; tender offer; bear hug) Explain the popularity of acquisition strategies in firms competing in the global economy * There are seven reasons why acquisitions in firms competing in the global economy work * Increased Market Power: * This is the primary reason for acquisition * If a firm achieves enough market power, it can become market leader * Example: AT&T acquisition with T-Mobile made them in the lead with market share in w-ireless service providers * Also, not only would their market share increase, but their customers would increase by 1/3 and all cell towers and wireless spectrum that t-mobile had would also turn to AT&T * Horizontal Acquisition: the acquisition...
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