公司理财精要版原书第12版英文版课件Ross-12e--Ch25.pptx

1、CHAPTER 25MERGERS AND ACQUISITIONSCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-2 Discuss the different types of mergers and acquisitions,why they should(or shouldnt)take place,and the terminolog

2、y associated with them Describe how accountants construct the combined balance sheet of the new company Define the gains from a merger or acquisition and how to value the transactionKEY CONCEPTS AND SKILLSCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution withou

3、t the prior written consent of McGraw-Hill Education.25-3 The Legal Forms of Acquisitions Taxes and Acquisitions Accounting for Acquisitions Gains from Acquisitions Some Financial Side Effects of Acquisitions The Cost of an Acquisition Defensive Tactics Some Evidence on Acquisitions:Does M&A Pay?Div

4、estitures and RestructuringsCHAPTER OUTLINECopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-4 There are three basic legal procedures that one firm can use to acquire another firm:1.Merger or consoli

5、dation2.Acquisition of stock3.Acquisition of assets Although these forms are different from a legal standpoint,the financial press frequently does not distinguish between them.The term merger is often used regardless of the actual form of the acquisition.THE LEGAL FORMS OF ACQUISITIONSCopyright 2019

6、 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-5 The Bidder the acquiring firm The Target Firm the firm that is sought(and perhaps acquired)The Consideration cash or securities offered to the target firm in the

7、 acquisitionMERGER TERMSCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-6 Merger One firm is acquired by another.Acquiring firm retains name and acquired firm ceases to exist.Advantage legally simp

8、le Disadvantage must be approved by stockholders of both firms Consolidation Entirely new firm is created from combination of existing firms.MERGER VS.CONSOLIDATIONCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hil

9、l Education.25-7 A firm can be acquired by another firm or individual(s)purchasing voting shares of the firms stock.Tender offer public offer to buy shares made directly by the bidder to target firm shareholders Those shareholders who choose to accept the offer tender their shares by exchanging them

10、 for cash or securities(or both),depending on the offer.A tender offer is frequently contingent on the bidders obtaining some percentage of the total voting shares.If not enough shares are tendered,then the offer might be withdrawn or reformulated.ACQUISITION OF STOCKCopyright 2019 McGraw-Hill Educa

11、tion.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-8 Stock acquisition versus a merger No stockholder vote required with stock acquisition Can deal directly with stockholders in a stock acquisition,even if management is unfriendly R

12、esistance by the target firms management often makes the cost of acquisition by stock higher than the cost of a merger.Often,a significant minority of shareholders will hold out in a tender offer,which will usually increase the cost and time required for a merger.Complete absorption of one firm by a

13、nother requires a merger.Many acquisitions by stock are followed up with a formal merger later.ACQUISITION OF STOCK(CTD.)Copyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-9 A firm can acquire another

14、 firm by buying most or all of its assets.In this case,the target firm still exists unless the stockholders choose to dissolve it.This type of acquisition requires a formal vote of the shareholders of the selling firm.One advantage of an asset acquisition is that there is no problem with minority sh

15、areholders holding out.One disadvantage of an acquisition of assets may involve transferring titles to individual assets,which can be very costly.ACQUISITION OF ASSETSCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-

16、Hill Education.25-10 Three types of acquisitions according to financial analysts:Horizontal both firms are in the same industry Vertical firms are in different stages of the production process Conglomerate firms are unrelatedCLASSIFICATIONS OF ACQUISITIONSCopyright 2019 McGraw-Hill Education.All rig

17、hts reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-11 Takeover-control of a firm transfers from one group to another Possible forms of a takeover:1.Acquisition Merger or consolidation Acquisition of stock Acquisition of assets2.Proxy contest-an

18、 attempt to gain control of a firm by soliciting a sufficient number of stockholder votes to replace existing management3.Going private-transactions in which all publicly owned stock in a firm is replaced with complete equity ownership by a private group TAKEOVERSCopyright 2019 McGraw-Hill Education

19、.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-12 Leveraged buyouts(LBOs):going-private transactions in which a large percentage of the money used to buy the stock is borrowed Often,incumbent management is involved Such transactions

20、 are also termed management buyouts(MBOs)when existing management is heavily involved.GOING PRIVATECopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-13 Strategic alliance:agreement between firms to c

21、ooperate in pursuit of a joint goal Joint venture:typically an agreement between firms to create a separate,co-owned entity established to pursue a joint goalALTERNATIVES TO MERGERCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written conse

22、nt of McGraw-Hill Education.25-14 Tax-free acquisition Business purpose;not solely to avoid taxes Continuity of equity interest stockholders of target firm must be able to maintain an equity interest in the combined firm Generally,stock for stock acquisition Taxable acquisition Firm purchased with c

23、ash Capital gains taxes stockholders of target may require a higher price to cover the taxes Assets are revalued affects depreciation expenseTAXES AND ACQUISITIONSCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill

24、 Education.25-15 Since 2001,the Federal Accounting Standards Board(FASB)requires that all acquisitions should be treated under the purchase accounting method.Purchase Accounting Assets of acquired firm must be reported at fair market value.Goodwill is created difference between purchase price and es

25、timated fair market value of net assets Goodwill no longer has to be amortized assets are essentially marked-to-market annually and goodwill is adjusted and treated as an expense if the market value of the assets has decreasedACCOUNTING FOR ACQUISITIONSCopyright 2019 McGraw-Hill Education.All rights

26、 reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-16 There are a number of possible reasons why a target firm will somehow be worth more in our hands than it is worth now.To determine the gains from an acquisition,we need to first identify the re

27、levant incremental cash flows,or,more generally,the source of value.GAINS FROM ACQUISITIONSCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-17 Synergy is the positive incremental net gain associated

28、 with the combination of two firms through a merger or acquisition.Synergy is generally a good reason for a merger.Firms must examine whether the synergies create enough benefit to justify the cost.SYNERGYCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution withou

29、t the prior written consent of McGraw-Hill Education.25-18 From earlier chapters,the incremental cash flow,CF,can be broken down into four parts:CF=EBIT+Depreciation+Tax Capital requirementsCF=Revenue Cost Tax Capital requirements The merger will make sense only if one or more of these cash flow com

30、ponents are beneficially affected by the merger.POTENTIAL SOURCES OF SYNERGYCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-19 Marketing gains Improving advertising Improving the distribution netwo

31、rk Improving an unbalanced product mix New strategic benefits Increasing market powerPOTENTIAL REVENUE ENHANCEMENTCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-20 Economies of scale Ability to pr

32、oduce larger quantities while reducing the average per unit cost Most common in industries that have high fixed costs Economies of vertical integration Coordinate operations more effectively Reduced search cost for suppliers or customers Complimentary resourcesPOTENTIAL COST REDUCTIONSCopyright 2019

33、 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-21 Take advantage of net operating losses.Carryforwards(carrybacks were eliminated by the Tax Cuts and Jobs Act of 2017)Merger may be prevented if the IRS believes

34、 the sole purpose is to avoid taxes.Unused debt capacity Surplus funds Pay dividends Repurchase shares Buy another firm Asset write-upsPOTENTIALLY LOWER TAXESCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Educ

35、ation.25-22 A merger may reduce the required investment in working capital and fixed assets relative to the two firms operating separately.Firms may be able to manage existing assets more effectively under one umbrella.Some assets may be sold if they are redundant in the combined firm(this includes

36、reducing human capital as well).POTENTIAL REDUCTIONS IN CAPITAL NEEDSCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-23 Do not rely on book values alone the market provides information about the tr

37、ue worth of assets.Estimate only incremental cash flows.Use an appropriate discount rate.Be aware of transaction costs these can add up quickly and become a substantial cash outflow.AVOIDING MISTAKESCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the

38、prior written consent of McGraw-Hill Education.25-24 Some firms could see a value increase with a change in management.These are firms that are poorly run or otherwise do not efficiently use their assets to create shareholder value.Mergers are a means of replacing management in such cases.INEFFICIEN

39、T MANAGEMENTCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-25 Financial side effects of a merger may occur regardless of whether the merger makes economic sense or not.Two such possible effects:EP

40、S growth DiversificationFINANCIAL SIDE EFFECTS OF ACQUISITIONSCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-26 Mergers may create the appearance of growth in earnings per share.If there are no sy

41、nergies or other benefits to the merger,then the growth in EPS is just an artifact of a larger firm and is not true growth.EPS GROWTHCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-27 Diversificati

42、on,in and of itself,is not a good reason for a merger.Stockholders can normally diversify their own portfolio cheaper than a firm can diversify by acquisition.Stockholder wealth may actually decrease after the merger because the reduction in risk,in effect,transfers wealth from the stockholders to t

43、he bondholders.DIVERSIFICATIONCopyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-28 Method 1:CASH ACQUISITION The cost of an acquisition when cash is used is just the cash itself.The cash cost largely

44、 determines whether the merger will be able to create value.Method 2:STOCK ACQUISITION In a stock merger,no cash actually changes hands.Instead,the shareholders of the target firm come in as new shareholders in the merged firm.COST OF AN ACQUISITIONCopyright 2019 McGraw-Hill Education.All rights res

45、erved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-29 Cost of Stock Acquisition Depends on the number of shares given to the target stockholders Depends on the price of the combined firms stock after the merger Considerations when choosing between cas

46、h and stock Sharing gains target stockholders dont participate in stock price appreciation with a cash acquisition Taxes cash acquisitions are generally taxable Control cash acquisitions do not dilute controlCASH VS.STOCK ACQUISITIONCopyright 2019 McGraw-Hill Education.All rights reserved.No reprodu

47、ction or distribution without the prior written consent of McGraw-Hill Education.25-30 Target firm managers frequently resist takeover attempts.Resistance may make target firm shareholders better off if it elicits a higher offer premium from the bidding firm or another firm.Some Defensive Tactics:Co

48、rporate charter Establishes conditions that allow for a takeover Supermajority voting requirement Targeted repurchase(a.k.a.greenmail)Standstill agreements Poison pills(share rights plans)Share rights plan Leveraged buyout(LBO)or management buyout(MBO)DEFENSIVE TACTICSCopyright 2019 McGraw-Hill Educ

49、ation.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.25-31 Golden parachute:Some target firms provide compensation to top-level managers if a takeover occurs.Poison put:Forces the firm to buy securities back at some set price Crown jewe

50、l:Firms often sell or threaten to sell major assetscrown jewelswhen faced with a takeover threat.This is sometimes referred to as the scorched earth strategy.MORE(COLORFUL)TERMS I Copyright 2019 McGraw-Hill Education.All rights reserved.No reproduction or distribution without the prior written conse