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TABLE OF CONTENTS CHAPTER 1 MERGERS AND ACQUISITIONS CHAPTER 2 DIVESTITURE GLOSSARY
CHAPTER 1 MERGERS AND ACQUISITIONS LEARNING OBJECTIVES: After studying this chapter you will be able to: 1. Define mergers. 2. List twelve conditions required to merge. 3. Define and perform due diligence. 4. Identify information to consider before "doing a deal” 5. Describe antitrust guidelines 6. Explain M & A percent rules. 7. Plan for mergers and acquisitions. 8. Decide on acquisition terms. 9. List factors in determining a price. 10. Describe grading criteria. 11. Summarize acquisition strategy and process. 12. Finance the merger. 13. Use capital budgeting techniques for M&A analysis. 14. Explain the effect of merger on earnings per share and Market price per share. 15. Describe the risk of the acquisition. 16. Explain the methods of hostile takeover bids. 17. Outline SEC filing requirements and tax considerations 18. Enumerate defensive measures by targeted company. 19. Determine the value of a targeted company. 20. Describe accounting, reporting and disclosures for business combinations 21. Discuss the importance of corporate development officers (CDOs)—M&A teams For years, academic studies maintained mergers and acquisition (M&A) deals destroyed shareholder value. In 2006, however, businesses around the globe bought (and therefore sold) more companies for more money than ever. It was not just a year of record merger volume more than $3,800 billions - but also a merger market with unprecedented breadth, across geographies and industries. M&A transactions in the current merger cycle differ in significant ways from those of the 1990s, and this probably explains why so much value has recently been created. Specifically, this current merger boom is characterized by • Horizontal consolidation with significant potential for cost synergies. • The use by acquirers of existing cash and borrowed money (after-tax cost) to purchase the (relatively higher cost) equity of acquired companies. • Much lower acquisition premiums being initially paid. Mergers and acquisitions can result in new organizations whose financial and strategic options are much improved. They are driven by globalization, a long-term market, various barriers to growth, which make M&As a valuable tool by which companies can quickly attempt to increase revenue.
This chapter discusses all facets of M&As including deciding on terms, key factors to consider, pros and cons of mergers, types of arrangements, evaluative criteria, valuation methods, financial effects of the merger, holding companies, takeover bids, SEC filing requirements, accounting and reporting requirements for business combinations, and financial analysis of combinations. External growth occurs when a business purchases the existing assets of another entity through a merger. You are often required to appraise the suitability of a potential merger as well as participate in negotiations. Besides the growth aspect, a merger may reduce risk through diversification. The three common ways of joining two or more companies are a merger, consolidation, or a holding company. In a merger, two or more companies are combined into one, where only the acquiring company retains its identity. Generally, the larger of the two companies is the acquirer. A merger is a business combination in which the acquiring firm absorbs a second firm, and the acquiring firm remains in business as a combination of the two merged firms. The acquiring firm usually maintains its name and identity. Mergers are legally straightforward because there is usually a single bidder and payment is made primarily...