Mergers Pritt

In: Business and Management

Submitted By hondarover
Words 28532
Pages 115
MERGERS & ACQUISITIONS

INTRODUCTION

Why merge? Why sell?
A division of a company might no longer fit into larger corp’s plans, so corp sells division
Infighting between owners of corp. Sell and split proceeds
Incompetent management or ownership
Need money
Business is declining (e.g. a buggywhip company)
Industry-specific conditions
Economies of scale

BASIC DEFINITIONS:

MERGER: Owners of separate, roughly equal sized firms pool their interests in a single firm. Surviving firm takes on the assets and liabilities of the selling firm.

PURCHASE:
Purchasing firm pays for all the assets or all the stock of the selling firm. Distinction between a purchase and a merger depends on the final position of the shareholders of the constituent firms.

TAKEOVER:
A stock purchase offer in which the acquiring firm buys a controlling block of stock in the target. This enables purchasers to elect the board of directors. Both hostile and friendly takeovers exist.

FREEZE-OUTS (also SQUEEZE-OUTS or CASH-OUTS):
Transactions that eliminate minority SH interests.

HORIZONTAL MERGERS:
Mergers between competitors. This may create monopolies. Government responds by enacting Sherman Act and Clayton Act

VERTICAL MERGERS:
Mergers between companies which operate at different phases of production (e.g. GM merger with Fisher Auto Body.) Vertical mergers prevents a company from being held up by a supplier or consumer of goods.

LEVERAGED BUYOUTS (LBOs):
A private group of investors borrows heavily to finance the purchase control of an ongoing business.

RECAPITALIZATIONS:
Does not involve the combination of two separate entities. Here, a firm reshuffles its capital structure. In a SWAP, the corp takes back outstanding equity stocks in return for other types of securities (usually long term bonds or preferred stock)

RESTRUCTURINGS:
This term…...

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