Anti-Takeover Strategies
Mergers and Acquisition
Reasons
1. Growth 2. Synergy NAV = PVab – ( PVa + PVb ) – P – E 3. Managerial efficiency 4. Market entry 5. Diversification 6. Tax shields 7. Strategic
Some unstated reasons for acquisitions: 1. Megalomania 2. Hubris spirit
Forms of Business Combinations
1. Consolidation: result: a new firm e.g. Sandoz + Ciba Geigy = Novartis
2. Merger: result: only one survive e.g. HDFC BK + TIMES BK = HDFC
3. Takeovers: control over mgmt thru substantial portion of its equity. e.g. Credit Swiss Group controlled First Boston’s Mgmt thru Equity acquisition. Both remained in existence.
4. Asset purchases: A buyout a division or assets of T e.g. Coca-Cola paid Rs 170Cr to Parle for its Soft drinks brands like Thumps up, Limca, Gold Spot, etc.
The Acquisition Process
1. Acquisition Search
2. Approaching the Target
a. Passive Strategy
b. Active Strategy
3. Valuation
a. Discounted Cash Flow Method
b. Comparable Companies Method
c. Book Value Method
d. Market Value Method
4. Negotiation
5. Due Diligence
6. Acquisition Finance
Sell-offs
1. Opportunistic
2. Forced
3. Planned
Forms of Corporate Downsizing
1. Spin-Off
A new legal entity is created to takeover the operations of an existing division.The Shares of the new unit is distributed pro rata among the existing share holders.
2. Split-Off
A new legal entity is created to takeover the operations of an existing division. The Shares of parent co are exchanged for the shares of the new co. Hence the share-holding of the new entity does not reflect the share holding of the parent firm.
3. Split-Up
A complete break up of a company into two or more and parent firm ceases to exist.
4. Equity Carveouts
Conversion of existing division or unit into a wholly owned subsidiary.Result in positive cash flow.
5. Divestitures
Outright sale of a portion of the firm to outsiders. The firm receives purchase consideration in the form of cash or securities or both.
The Divestitures Process
1.
Reasons
1. Growth 2. Synergy NAV = PVab – ( PVa + PVb ) – P – E 3. Managerial efficiency 4. Market entry 5. Diversification 6. Tax shields 7. Strategic
Some unstated reasons for acquisitions: 1. Megalomania 2. Hubris spirit
Forms of Business Combinations
1. Consolidation: result: a new firm e.g. Sandoz + Ciba Geigy = Novartis
2. Merger: result: only one survive e.g. HDFC BK + TIMES BK = HDFC
3. Takeovers: control over mgmt thru substantial portion of its equity. e.g. Credit Swiss Group controlled First Boston’s Mgmt thru Equity acquisition. Both remained in existence.
4. Asset purchases: A buyout a division or assets of T e.g. Coca-Cola paid Rs 170Cr to Parle for its Soft drinks brands like Thumps up, Limca, Gold Spot, etc.
The Acquisition Process
1. Acquisition Search
2. Approaching the Target
a. Passive Strategy
b. Active Strategy
3. Valuation
a. Discounted Cash Flow Method
b. Comparable Companies Method
c. Book Value Method
d. Market Value Method
4. Negotiation
5. Due Diligence
6. Acquisition Finance
Sell-offs
1. Opportunistic
2. Forced
3. Planned
Forms of Corporate Downsizing
1. Spin-Off
A new legal entity is created to takeover the operations of an existing division.The Shares of the new unit is distributed pro rata among the existing share holders.
2. Split-Off
A new legal entity is created to takeover the operations of an existing division. The Shares of parent co are exchanged for the shares of the new co. Hence the share-holding of the new entity does not reflect the share holding of the parent firm.
3. Split-Up
A complete break up of a company into two or more and parent firm ceases to exist.
4. Equity Carveouts
Conversion of existing division or unit into a wholly owned subsidiary.Result in positive cash flow.
5. Divestitures
Outright sale of a portion of the firm to outsiders. The firm receives purchase consideration in the form of cash or securities or both.
The Divestitures Process
1.