...In a general sense, mergers and takeovers (or acquisitions) are very similar corporate actions - they combine two previously separate firms into a single legal entity. Significant operational advantages can be obtained when two firms are combined and, in fact, the goal of most mergers and acquisitions is to improve company performance and shareholder value over the long-term. The motivation to pursue a merger or acquisition can be considerable; a company that combines itself with another can experience boosted economies of scale, greater sales revenue and market share in its market, broadened diversification and increased tax efficiency. However, the underlying business rationale and financing methodology for mergers and takeovers are substantially different. A merger involves the mutual decision of two companies to combine and become one entity; it can be seen as a decision made by two "equals". The combined business, through structural and operational advantages secured by the merger, can cut costs and increase profits, boosting shareholder values for both groups of shareholders. A typical merger, in other words, involves two relatively equal companies, which combine to become one legal entity with the goal of producing a company that is worth more than the sum of its parts. In a merger of two corporations, the shareholders usually have their shares in the old company exchanged for an equal number of shares in the merged entity. For example, back in 1998, American Automaker...
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...With reference to your own research do you think that takeovers and mergers inevitably improve the performances of the businesses involved? Mergers and takeovers are similar corporate actions combing two previous separate firms now formed into one legal entity. A takeover revolves around gaining control of something, especially the buying out of one firm/company by another while a merger contrasts as it includes a combination of firms where there is a mutual agreement of two companies to combine and become one entity. At first glance it may be viewed that takeovers and mergers will certainly really benefit all firms and performances of business involved will improve although there are lots of considerable aspects involved in both takeovers and mergers that must be identified and may highlight that businesses will certainly benefit from takeovers and mergers. It is also important to recognise and define what is actually meant by ‘performance’ or firms. Performance or business often revolves around quantifiable terms used to assess how well a firm is achieving its objectives. Many businesses can often measure its performance in terms of obviously its revenue, market share, market capitalism (culminative value of all shares), production, demand and operating efficiency in order to get more sense of how their business is operating and whether and improvements are required but they may also measure the performance of a business in more tangible terms including its innovation, motivation...
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...Takeovers and mergers are complex transactions where many things can go wrong and therefore affect the success or failure of the deal. Integration planning is an important part of the takeover process, although there are other potentially significant factors that affect whether a takeover is successful which also need to be considered. (knowledge/ evaluation) Integration planning refers to a process in which the buying business (the acquirer) identifies how it will run the takeover target once the transfer of ownership has been completed. Integration involves many functional challenges such as how to manage customer reaction to the takeover, handle uncertainty amongst employees and integrate potentially different computer systems. Key strategic issues also arise – for example decisions over the future of competing brands, key business locations and the senior management structure. (application) Integration planning normally takes place before the transaction is completed with the aim of ensuring that the acquirer has a clear idea of the integration issues and a realistic action plan of how these issues can be addressed. It can be seen therefore that good integration planning can reduce the risks involved. (knowledge/ analysis) One reason why integration planning is important (evaluation) in determining the success of a takeover is that the process of integration is closely tied in with the need to achieve synergies. Synergies include cost savings and additional revenues...
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...extent do you think that shareholders are always worse off following a merger or takeover? (40) A stakeholder is an individual or group with a direct interest in the activities and performance f the group. Mergers occur where two or more firms agree to come together under one firm. Following a merger or takeover, customers are always worse off because they are likely to be faced with less choice thus higher prices. This is because two firms merging together reduces the number of firms in a market which in turn increase their market share thus market power. This makes it increasingly difficult for new firms with innovative ideas to enter the market and for smaller firms to stay in the market, so consumers get less varied and innovative goods. Therefore less choice is a negative implication for consumers. Moreover, less choice can mean higher prices because firms have more market power and less competition so if a firm increases price, consumers essentially have nowhere to go as threat of competitors is reduced. In the merger between Thomas cook and co-operative travel there is fear that they will increase prices and there will be less choice which is completely conflicting of customers objectives which is to have quality goods at competitive prices. However, the extent of these negative implications are dependent on the sizes of the firms integrating, also the external influences at the time. During the merger of Thomas cook and cooperative there was a recession. This meant that...
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...The Hubris Hypothesis of Corporate Takeovers Author(s): Richard Roll Source: The Journal of Business, Vol. 59, No. 2, Part 1 (Apr., 1986), pp. 197-216 Published by: The University of Chicago Press Stable URL: http://www.jstor.org/stable/2353017 Accessed: 10/02/2010 10:10 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/action/showPublisher?publisherCode=ucpress. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. The University of Chicago Press is collaborating with JSTOR to digitize, preserve and extend access to The Journal...
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...NO. 6 • DEC. 2000 Hostility in Takeovers: In the Eyes of the Beholder? G. WILLIAM SCHWERT* ABSTRACT This paper examines whether hostile takeovers can be distinguished from friendly takeovers, empirically, based on accounting and stock performance data. Much has been made of this distinction in both the popular and the academic literature, where gains from hostile takeovers result from replacing incumbent managers and gains from friendly takeovers result from strategic synergies. Alternatively, hostility could ref lect strategic choices made by the bidder or the target. Empirical tests show that most deals described as hostile in the press are not distinguishable from friendly deals in economic terms, except that hostile transactions involve publicity as part of the bargaining process. THE PERCEPTION OF HOSTILITY in American takeovers has had important connotations in both the popular and the academic literature. Unwelcome bids are often perceived to threaten at least some of the stakeholders in target corporations, leading to extensive defensive reactions by the management of the target firm. In contrast, friendly takeovers are often seen to create synergies that make both the bidder and the target firm better off ~see, for example, Mørck, Shleifer, and Vishny ~1988, 1989!!. The distinction between hostile and friendly takeovers is also important if removing an inefficient target management team creates the gains from hostile takeovers. Manne ~1965! refers to this as part...
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...Introduction It all kicked off on 6 June 2003, when Oracle ambushed PeopleSoft with a hostile takeover bid valued at $5.1 billion just four days after PeopleSoft agreed to a $1.8 billion deal with J.D. Edwards. The acquisition fight lasted over 18 months and has become a staple in business and law school case studies. PeopleSoft specialized in Enterprise Resource Planning (ERP) software solutions. It was very strong in human resource software and other back-office functions, competing with SAP and Siebel; however, as the ERP space began to see dramatically reduced growth, PeopleSoft’s sales began to lag. Company leaders saw the acquisition of smaller J.D Edwards as a way to bolster and expand its business into enterprise management and supply chain solutions. Although this acquisition would place PeopleSoft in a better position to compete with market leaders, it never got a chance to enjoy the hype and excitement. Oracle announced its tender offer takeover of PeopleSoft and Oracle CEO, Larry Ellison, further announced that that the company would discontinue PeopleSoft products once the merger was complete (although product support for existing customers would continue). PeopleSoft faced significant challenges. The true intention of Oracle was unknown, and a personal conflict between the PeopleSoft and Oracle CEOs added complexity into the issue. The unwelcome tender offer cast a cloud of doubt upon PeopleSoft’s future and required that the board seriously consider...
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...infrastructure was used for freight transportation business. In the mid-1800s the industry experienced explosive growth, followed by significant consolidation in 1870. The rail road companies initiated expansion through acquisitions in attempt to reduce marginal costs and increase their market share. As a result of this competition, a number of cartels were formed; therefore the federal government intervened and established regulation on railroad mergers, infrastructure construction and divestments. On the other hand, the government initiated enormous investments in highway infrastructure, which resulted in the emerging of the trucking industry. Together with innovations in motor and tire technologies, the trucking industry began gaining significant market share of the freight transportation business from the rail road companies. As a result, the six largest railroads in the Northeast filed for bankruptcy. In response to the failures, the Congress passed the Stagger’s Rail Act of 1980 in order to deregulate the railroad industry, which resumed the mergers and acquisitions activity. The following analysis will investigate the economics of the offer for Consolidated Rail Corporation (Conrail) by CSX Corporation (CSX) and Norfolk Southern Corporation (Norfolk). The stand-alone bidders, CSX and Norfolk would value the target, Conrail, based on its fundamentals, however if both bidders are present they would enter price wars and legal battles, therefore this would inflate the offered price for...
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...ETHICS IN FINANCE Meaning of Ethics Ethics is the study of human behavior which is right or wrong. In general, ethics means doing right things to others, being honest to others, being fair and justice to others. Even ethics in finance is a compartment to general ethics. Ethics are very important to maintain constancy in social life, where people work together with one another. In the process of social development we should not be conscious of ourselves but also conscious to take care of others. WHAT IS FINANCE Finance means fund or other financial resources; it deals with matter related to money and the market. The field of finance refers to the concept of time, money and risk and how they are interrelated. Banks are the main facilitators of funding. Funding means asset in the form of money Finance is the set of activities that deals with the management of funds. It helps in making the decision like how to use the collected fund. It is also art and science of determining if the funds of an organization are being used in a right manner or not. Through financial analysis, any company or business can take decision in making financial investments, acquisition of company, selling of company, to know the financial standing of their business in present, past and future. It helps to stay competitive with others in making strategic financial decisions. Finance is the backbone of business; no business can run without finance. WHAT IS ETHICS IN FINANCE Ethics in finance...
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...Investment Notes -T-Bills: Treasury bills (or T-bills) mature in one year or less. Like zero-coupon bonds, they do not pay interest prior to maturity; instead they are sold at a discount of the par value to create a positive yield to maturity. -Federal Funds: overnight borrowings between banks and other entities to maintain their bank reserves at the Federal Reserve. Banks keep reserves at Federal Reserve Banks to meet their reserve requirements and to clear financial transactions. -Eurodollars: are time deposits denominated in U.S. dollars at banks outside the U.S. and thus are not under the jurisdiction of the Federal Reserve. -The term was originally coined for U.S. dollars in European banks. -There is no connection with the euro currency or Eurozone. -FRA: a forward rate agreement (FRA) is a forward contract, an over-the-counter contract between parties that determines the rate of interest, or the currency exchange rate, to be paid or received on an obligation beginning at a future start date. -Investing in International shares: -Carry trade: is a strategy in which an investor borrows money at a low interest rate in order to invest in an asset that is likely to provide a higher return. This strategy is very common in the foreign exchange market -Counter-trade: an umbrella term used to describe many different types of transactions, each “in which the seller provides a buyer with goods or services and promises in return to purchase goods or services from the buyer” ...
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...I I Step 1: Establish a motive for the acquisition Step 2: Choose a target Step 3: Value the target with the acquisition motive built in. Step 4: Decide on the mode of payment - cash or stock, and if cash, arrange for financing - debt or equity. Step 5: Choose the accounting method for the merger/acquisition purchase or pooling. Aswath Damodaran 3 Step 1: Motives behind acquisitions (1) Simplest rationale is undervaluation, i.e., that firms that are undervalued by financial markets, relative to true value, will be targeted for acquisition by those who recognize this anomaly. (2) A more controversial reason is diversification, with the intent of stabilizing earnings and reducing risk. (3) Synergy refers to the potential additional value from combining two firms, either from operational or financial sources. • • Operating Synergy can come from higher growth or lower costs Financial Synergy can come from tax savings, increased debt capacity or cash slack. (4) Poorly managed firms are taken over and restructured by the new owners, who lay claim to the additional value. (5) Managerial self-interest and hubris are the primary, though unstated, reasons for many takeovers. Aswath Damodaran 4 Step 2: Choose a target firm for the acquisition If motive is Target firm...
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...2. Introduction 1. Background of the Company [pic] Microsoft is one of the biggest software and IT companies in the world. The industry touches every region of Technology. Its current best-selling products are the Microsoft Windows operating system and the Microsoft Office suite of productivity software. They cover Operation System (Vista and Windows 7), Server and Tools Division (Windows server 2008, VB and SQL), Online Services Business division (MSN and the search engine Bing), Microsoft Business Division (Microsoft Office), and Entertainment Devices Division (smart phones, XBOX and MSN TV). Microsoft mission is to enable people and businesses throughout the world to realize their full potential. It develops software, hardware, service and solution to achieve this goal since it established at 1975 by Bill Gates and Paul Allen in Albuquerque. In 1980, Microsoft formed a partnership with IBM that allowed them to bundle Microsoft’s operating system with IBM computers, paying Microsoft a royalty for every sale. With a real big range of service IT service, we can say the client of Microsoft is unlimited, from OEM, business, and individuals. And the competition is all over from every division, such as Apple in PC Market and Google in Online Service Market. [pic] Yahoo! Was started at Stanford University in January 1994 by Jerry Yang and David Filo. Both of them were Electrical Engineering graduate students when they created a website named “Jerry and...
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...Chapter 3 Case Study: Mittal Acquires Arcelor in a Battle of Global Titans 1. Identify the takeover tactics employed by Mittal. Explain why each was used. Answer: Mittal attempted a friendly takeover by initiating behind the scenes negotiations with Guy Dolle, CEO of Arcelor. However, after being rebuffed publicly, Mittal employed a two-tiered cash and stock tender offer to circumvent the Arcelor board. To counter virulent opposition from both Arcelor management and local politicians, Mittal announced that it would condition the second tier of its tender offer on receiving more than one-half of the Arcelor voting stock. However, the second tier offer would be at a slightly lower price than offered in the first tier. This was done to encourage Arcelor shareholders to participate in the first tier offering. If Mittal could gain a majority of voting shares it would be able to acquire the remaining shares through a backend merger. Moreover, Mittal sued to test the legality of Arcelor’s moving its recently acquired Dofasco operations into a trust to prevent Mittal from selling the operation to help finance the takeover. Mittal also attempted to rally large shareholder support against what were portrayed as Arcelor management’s self-serving maneuvers. Finally, Mittal continued efforts to appeal to shareholders by raising its bid from its initial 22 percent premium to the then current Arcelor share price to what amounted to a 93 percent premium and agreeing to eliminate...
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...Pills. [2] Impact of Poision Pills on Stock Prices. [3] List the Preliminary Takeover Steps: a) Bidding Strategies b) Casual Pass c) Bear Hugs [4] What is Tender Offers Throughout the years many acquisitions have been hostile, which has led to companies to creative preventative and defensive takeover methods. Preventative is used as a way to reduce the likelihood of a takeover, and defensive measure (active measures) are used afer a hostile bid has been issued. Keeping the company successful with shares at a high cost prevents short-term gain takeover. There are two hypothesis that explain the impact on management and stockholders during a hostile takeover. Management Entrnechment hypothesis states that nonparticipating stockholders experience a reduction in wealth when management tries to stop a takeover, where Shareholders interests hypotheiss states that stockholders’ wealth rises when management prevent takeover. Companies today monitor it’s shareholders and the percentage that they own as a way to foresee a potential hostile takeover. Many companies even sell and provide their employees with shares because they are more likely to oppose a takeover, whereas an investor shareholder will more likely to favor a takeover. When an increase of trading occurs, the company gets a clue in that a bidder may be preparing to takeover the company. Once an acquirer has purchased a large amount of the company shares, it...
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...Corporate Crisis and Restructuring of ArcelorMittal About ArcelorMittal ArcelorMittal is a multinational steel manufacturing corporation headquartered in Avenue,Luxembourg.It was formed in 2006 from the takeover and merger of Arcelor by Mittal Steel.ArcelorMittal is the world's largest steel producer,with an annual crude steel production of 97.2 million tones as of 2011.It is ranked 70th in the 2012 Fortune Global 500 ranking of the world's biggest corporations. ArcelorMittal was created by the takeover of Western European steel maker Arcelor by India-based multinational steel maker Mittal Steel in 2006, at a cost of €40.37 per share, approximately $33 billion total.Mittal Steel launched a hostile takeover bid which replaced a previous planned merged between Arcelor and Severstal, which had lacked sufficient shareholder approval. The resulting merged business was named ArcelorMittal and headquartered in Luxembourg.The resulting firm produced approximately 10% of the world's steel, and was by far the world's largest steel company.Total revenues in 2007 were $105 billion.In October 2008, the market capitalization of ArcelorMittal was over $30 billion. On 30 June 2010, the European Commission fined 17 steel producers a total of €518 million for running a price-fixing cartel, with ArcelorMittal being fined over €270 million.In 2012 the company had $22 billion of debt.As of 2012, due to overcapacity and reduced demand in Europe it had idled 9 of 25 blast furnaces.In October...
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