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Mergers Introduction (1)

Mergers Introduction (1). Why study mergers? Merger activity totals roughly $1 Trillion per year in the US and a similar amount in Western Europe Mergers serve an important role in achieving strategic and financial objectives. Mergers Introduction (2). Why hostile mergers?

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Mergers Introduction (1)

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  1. MergersIntroduction (1) Why study mergers? Merger activity totals roughly $1 Trillion per year in the US and a similar amount in Western Europe Mergers serve an important role in achieving strategic and financial objectives

  2. MergersIntroduction (2) Why hostile mergers? Most issues in negotiated mergers are also present in hostile ones. But hostile mergers add other important dimensions to the discussion. Brings out focus of major corporate governance initiatives (14a-11, 2004-5)

  3. Approaches to Studying Mergers Strategic HRM Integration (important but not covered in this course) Accounting Consolidation Legal / Regulatory Corporate Governance: Who Decides? Shareholders? Managers? Directors? Finance Focus (cont’d)

  4. Finance Issues Empirical evidence (historical) How is “success” measured? Valuation Issues Theory (EMH, agency, CAPM) Takeover Strategy (tender offer) Takeover Defenses

  5. Finance Issues Managers (target / acquiror) Investment Bankers Lawyers / Analysts Investors (institutional et al.) Risk Arbitrageurs Proxy Solicitors / PR Firms Governments (Federal, State)

  6. Legal Issues (1) BOD Duties BOD Rights Shareholder Role

  7. Legal Issues (2) Key Cases: Smith v. VanGorkom Revlon Basic v. Levinson CTS v. Dynamics

  8. Student Comments textbook (me too!) too much law not enough law

  9. Mergers • Goal of the Firm • Competing goals • Merger WavesLate 1800’s: MonopolyEarly 1900’s: OligopolyLate 1960’s: ConglomerateLate 1980’s: FinancialMid-1990’s: Strategic

  10. Types of Mergers Vertical Horizontal Conglomerate

  11. Types of Risk Systematic: (undiversifiable) Unsystematic: (diversifiable)

  12. Conglomerates Conglomerate Growth Growth through EPS, P/E (see handout)

  13. Boston Consulting Group Stars Cash Cows Dogs

  14. Mergers Risk Arbitrage: Review Efficient Market Theory

  15. Mergers Valuation Models Constant Cash Flow Constant Growth Uneven Growth then Constant Growth Purchase v. Pooling

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