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Corporate Strategy Dr. Amin Wibowo, MBA. Takeovers, Restructuring, and Corporate Governance – Chapter 6 THEORIES OF MERGERS AND TENDER OFFERS J. Fred Weston ● Mark L. Mitchell ● J. Harold Mulherin. MM UGM Yogyakarta, 18 December 2010 Group 3 AP-14 : Bayu Setiaji Nureni Susilowati
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Dr. Amin Wibowo, MBA
Takeovers, Restructuring, and Corporate Governance – Chapter 6THEORIES OF MERGERS AND TENDER OFFERSJ. Fred Weston ● Mark L. Mitchell ● J. Harold Mulherin
MM UGM Yogyakarta, 18 December 2010
Group 3 AP-14 :
Why do mergers occurs ?
What are the possible effects of merger activity on firm value ?
How does the merger process unfold ?
Ronald Coase (1937) :
Bradley, Desai, and Kim :
- Merger create synergies synergies economies of scale, more effective management, improved production techniques, and the combination of complementary resources.
Manne, Alchian and Demsetz :
- Mergers are a source of value reduction
Free cash flow is a source of value-reducing mergers,
A firm with high FCF is in excess of the investments required to fund positive NPV projects.
Schleifer-Vishny : model of management entrenchment.
- Managers make investments that increase the manager’s
value to shareholders.
managers overpay but lower the likelihood that
they will be replaced.
Richard Roll :
- Merger bidding based on managerial hubris.
- Markets are strong form efficient (private information does not produce above normal returns) but individual managers are prone to excessive self confidence (excessive optimism) .
- The winner’s curse concept :
The winner is the bidder who has the highest estimate in distribution, however the winner is cursed by the fact that the bid was, in all likelihood, higher than the asset on firm’s actual value.
effects on value. The bid exceeds the target’s value, the
target sells and what is gained by the target shareholders
is a wealth transfer from the bidding firm’s owner.
Effect mergers on target, bidder, and combined value.
of the expected synergies from the merger.