Advanced Corporate Finance

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Table of Contents
1. Introduction
2. Typology of mergers兼并
3. Reasons to acquire收购companies
4. Integration process
5. Quantifying定量the value of an acquisition收购
Typology of mergers & acquisitions
Different forms of acquisitions:
One possibility is literally字面意思to merge the two companies, in which case one company automatically自动assumes all the assets and all the liabilities of the other Such a merger must receive the approval许可of at least 50% of the shareholders of each firm An alternative选择性is simply to buy the seller's stocks in exchange for cash, shares or other securities 证劵 In which case the acquirer收购方will deal individually单独with the shareholders of the selling company A third approach is to buy some or all of the seller's assets In this case, ownership of the assets need to be transferred and payment is made to the selling firm rather than directly to its shareholders Merger accounting

If company A buys company B at a market value which is superior to its book value, company A paid a premium Company A will show in its consolidated accounts an amount of goodwill equivalent to the premium paid Typology of mergers & acquisitions

Merger Accounting
The premium can be justified by a licence not valued in company B balance sheet or a promising product or technology Company A will be obliged each year to estimate the fair value of the goodwill and if it falls below the premium, the amount on the balance sheet must be adjusted downward and the write-off deducted from that year's earnings (goodwill impairment in the profit & loss statement) Tax Considerations

If payment is in the form of cash, then the selling shareholders are treated as having sold their shares and will pay tax on capital gains If payment is largely in the form of shares, the acquisition is tax-free and the shareholders are viewed as exchanging their old shares for similar new ones Typology of mergers & acquisitions

Mergers and anti-trust law
In the US, the Clayton Act of 1914 forbids acquisition whenever . in any line of commerce or in any section of the country . the effect .may be substantially to lessen competition or tend to create a monopoly . In Europe, a merger must receive the prior approval of the relevant authority (Financial Market European Agency, European Commission) Sometimes governments themselves can oppose mergers if they think the assets are strategic for their country In 2005, China National Offshore Oil Corporation felt obliged to withdraw its bid for Unocal following strong opposition from the American Congress In 2006, the same American Congress put as a condition to the takeover of Britain P&O by the Dubai company DP World that the P&O ports in the US should be excluded from the deal. Typology of mergers & acquisitions

Different types of mergers (friendly, hostile)
A conglomerate merger involves companies in unrelated lines of businesses The principal mergers of the 1960s and the 1970s were mostly conglomerates These mergers were mostly driven by a wish for diversification which is usually not a good motive for mergers Much of the action in the 1980s and 1990s has come from breaking up the conglomerates that had been formed 10 or 20 years earlier Typology of mergers & acquisitions

A horizontal merger is a combination of two firms in the same business line A vertical merger involves companies at different stages of production The acquirer expands back towards the source of raw materials or forward in the direction of the ultimate consumer Vertical mergers seek economies in vertical integration

In addition, vertical integration facilitates coordination and administration Nowadays the tide of vertical integration has slowed down a lot and many companies find it more efficient to outsource the provision of some services Typology of mergers & acquisitions

1960s-1970s
Diversification was considered as an effective means to create...
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