财务管理基础工业出版社13版Chap020-PPT

ExternalGrowththroughMergers,20,1-2,ChapterOutline,MergersasameansofincreasingoperatingefficiencyandforfinancialmotivesAcquiringofcompaniesthroughcashortheexchangeofsharesPotentialimpactofmergersonearningspershareandassessmentofstockvalueDiversificationbenefitsUnfriendlybuyouts,1-3,LargestAcquisitionsEver,1-4,MotivesforBusinessCombinations,MergerAcombinationoftwoormorecompaniesinwhichtheresultingfirmmaintainstheidentityoftheacquiringfirmConsolidationTwoormorecompaniescombinedtoformanewentityMightbeutilizedwhenthefirmsareofequalsizeandmarketpower,1-5,FinancialMotives,MergerallowsacquiringfirmstoenjoyapotentiallydesirableportfolioeffectAchieveriskreductionwhilemaintainingthefirmsrateofreturnVariabilityinperformancemaybereducedforthebusinessfirmswithoppositephasesofthebusinesscyclePortfoliodiversificationbecomescomplicatedwithrespecttopracticalitiesItimprovesthefinancingpostureasaresultofexpansion,1-6,FinancialMotives(contd),LargerfirmsmayenjoygreateraccesstothecapitalmarketCanattractlargerandmoreprestigiousinvestmentbankerstohandlefuturefinancingGreaterfinancingmayalsobeinherentinthemergeritself,especiallylikelywhen:TheacquiredfirmhasthestrongcashpositionAlowdebt-equityratiothatcanbeusedtoexpandborrowingbytheacquiringfirm,1-7,TaxLossCarryforward,MaybeavailableinamergerifoneofthefirmshaspreviouslysustainedataxlossAssumingFirmAacquiresFirmB,whichhasa$220,000taxlosscarryforwardTheassumptionisthatthefirmhasa40%taxrate.ThetaxshieldvalueofacarryforwardtoFirmAisequaltothelossinvolvedtimesthetaxrate($220,000X40%=$88,000)Thecompanycanreduceitstotaltaxesfrom$120,000to$32,000,andthuscouldpay$88,000forthecarryforwardaloneTheincomeavailabletostockholdersalsohasincreasedby$88,000FirmBsanticipatedoperatinggainsandlossesforfutureyearsmustalsobeconsideredinanalyzingthedeal,1-8,TaxLossCarryforward(contd),1-9,NonfinancialMotives,Desiretoexpandmanagementandmarketingcapabilities,andacquisitionofnewproductsMaybedirectedtowardverticalorhorizontalintegrationAntitrustpolicygenerallyprecludestheeliminationofcompetitionManagementmotivation-synergisticeffect:EliminatingoverlappingfunctionsinproductionandmarketingMeshingtogethervariousengineeringcapabilities,1-10,MotivesofSellingStockholders,MotivationcanbefromtheprobabilityofreceivingtheacquiringcompanysstockStockholderscandiversifytheirholdingsintonewinvestments-ifcashisofferedOfficersmayreceiveattractivepostmergermanagementcontractsalongwithdirectorshipoftheacquiringfirmBiasagainstsmallerbusinessesthathasdevelopedworldwidecanbeamotivationalfactor,1-11,CashPurchases,Insteadofpurchasingnewplantormachinery,thepurchaserhasoptedtoacquireagoingconcernAssumethatFirmAisconsideringtheacquisitionofFirmBfor$1million.FirmBhasanexpectedcashflow(aftertaxearningsplusdepreciation)of$100,000peryearforthenext5yearsand$150,000peryearforthe6ththroughthe20thyearsThesynergisticbenefitswilladdupto$10,000peryeartocashflowFirmBhasa$50,000losscarryforwardforimmediateuse.Witha40%taxrate,thiswillshield$20,000ofprofitfromtaxesFirmAhasa10%costofcapital,andthisisassumedtoremainstablewiththemerger,1-12,CashPurchases(contd),1-13,CashPurchases(contd),Thepresentvaluefactorforthefirstfiveyearsisbasedonn=5,i=10%.Forthe6ththroughthe20thyears,thepresentvaluefactoristakenforn=20,i=10%Totalpresentvalueofinflows.$1,172,690Netcashoutflow.980,000Netpresentvalue.$192,690Theacquisitionseemslikeadesirableoption,1-14,Stock-for-StockExchange,EmphasisislaidonearningspershareimpactofexchangingsecuritiesShareholdersoftheacquiredfirmareconcernedwith:TheinitialpricetheyarepaidfortheirsharesTheoutlookfortheacquiringfirmAnalysisishencemademainlyfromtheviewpointofthefirm,1-15,FinancialDataonPotentialMergingFirms,1-16,PostmergerEarningsPerShare,1-17,PossibilitiesofMergersbasedonStock-for-StockExchanges,Acquiringfirmincreasesitsimmediateearningspershareasaresultofthemerger:ButmayslowitsfuturegrowthrateifisbuyingalessaggressivefirmAcquiringfirmmaydiluteimmediatepostmergerearningspershare:Butincreaseitspotentialgrowthrateforthefutureasaresultofacquiringarapidlygrowingfirm,1-18,PortfolioEffect,ThereductionorincreaseinriskmayinfluencetheP/EratioasmuchasthechangeinthegrowthrateIftheoverallriskisreduced,thereisanincreaseinpostmergerP/EratioandmarketvaluemayincreaseBusinessriskreduction:acquireanotherfirmthatisinfluencedbyasetoffactorsoppositefromthosethatinfluencethefirmFinancialriskreduction:restructurethepostmergerfinancialarrangementstoincludelessdebtIfthereislessriskinafirm,theinvestormaybewillingtoassignahighervaluation,thusincreasingtheP/Eratio,1-19,Risk-ReductionPortfolioBenefits,1-20,AccountingConsiderationsinMergersandAcquisitions,Poolingofinterests:AcquiringfirmissuesonlycommonstockinexchangeformostlyalloftheotherfirmsvotingstockAcquiredfirmsstockholdersmaintainanownershippositioninthesurvivingfirmCombinedentitydoesnotintendtodisposeofalargeportionoftheassetsofthemergedfirmswithintwoyearsCombinationiseffectedinasingletransaction,1-21,PurchaseofAssets,GoodwillmaybecreatedwhenassetspurchaseisinvolvedNecessarywhenthetenderofferisincash,bonds,preferredstock,orcommonstockwithrestrictedrightsFASBputSFAS141andSFAS142inplacetoeliminatepoolingofinterestsaccountingPlacedonthebalancesheetoftheacquiringfirmatthetimeofacquisition,1-22,EvaluationofGoodwill,Fairvalueofgoodwillcanbedeterminedbytakingpresentvalueoffuturecashflows,andsubtractingliabilitiesIfthegoodwillisimpaired,partofitmustimmediatelybewrittendownagainstoperatingincomeTheFASBalsoallowscompaniestotakeaone-timewrite-downofallpastgoodwillimpairmentsatthetimeofadoptionbythefirm,1-23,NegotiatedversusTenderedOffers,Traditionally,productlines,qualityofassets,andfuturegrowthprospectshavebeendiscussedandanexchangeratioisagreeduponThetakeovertenderofferinvolvesanattemptbyacompanytoacquireatargetfirmagainstitswill(McGraw-HillAmericanExpress)Notallcompaniescanfendoffsuchunwantedadvances,1-24,NegotiatedversusTenderedOffers(contd),Saturdaynightspecial:asurpriseoffermadejustbeforethemarketclosesfortheweekendWhiteknight:athirdfirmthatthemanagementcallsontohelpitavoidtheinitialunwantedtenderofferMovingthecorporateofficestostatesthathavetoughprenotificationandprotectionprovisionsinregardtotakeoverbidsBuyingbacksomeoftheirownsharestorestricttheamountofstockavailableforthetakeover,1-25,ProtectiveMeasuresagainstaTakeoverTenderOffer,EncouragingemployeestobuystockunderthepensionplansIncreasingdividendsPossibletargetshavealsoboughtupothercompaniestoincreasetheirownsizePoisonpillisalsoaneffectivedeviceforprotection,1-26,PremiumOffersandStockPriceMovements,MostmergersarenotacquiredattheircurrentmarketvalueAmergerpremiumof40-60%(ormore)ispaidoverthepremergerpriceoftheacquiredcompanyDisadvantage:MuchoftheupsidemovementmayoccurbeforethepublicannouncementAdvantage:Goodprofitscanbemadeafterthemergerisaccomplished,1-27,PremiumOffersandStockPriceMovements(contd),Troublewithanymerger-relatedinvestments