公司理财（英文版·第5版）课件 第28章 兼并与收购

CorporateFinanceFifthEditionChapter28MergersandAcquisitionsCopyright©2020,2017,2014PearsonEducation,Inc.

AllRightsReservedChapterOutline28.1BackgroundandHistoricalTrends28.2MarketReactiontoaTakeover28.3ReasonstoAcquire28.4ValuationandtheTakeoverProcess28.5TakeoverDefenses28.6WhoGetstheValueAddedfromaTakeover?LearningObjectives(1of4)Describetrendsintheglobaltakeovermarketsincethe1960s.Identifythesourcesofsynergiesthataremostcommonlycitedinthejustificationgivenforacquiringafirm.Definetheterm“tenderoffer,”anddiscussthepremiumtypicallypaidovercurrentshareprice.LearningObjectives(2of4)Identifythegainstobothacquiringandtargetfirmsuponannouncementofatakeover;providereasonsforthosegainstoaccrue.Calculatethemaximumpremiumthatshouldbepaidinastockacquisition,aswellastheearningspersharebeforeandafteramerger,thenewpriceofthecombinedfirm,andthechangeinpercentageownershipthatwillhappenasaresultofthemerger.LearningObjectives(3of4)Identifytwomethodscommonlyusedtopayforatarget,andthetaxandaccountingconsequencesofeach.Discusstheroleoftheboardofdirectorsandshareholdersofthetargetandtheboardofdirectorsoftheacquirerinthemerger.Distinguishbetweenafriendlyandahostiletakeover.LearningObjectives(4of4)Listanddefineseveraldefensestrategiesagainsttakeovers.Definethefreeriderproblem,anddescribehowitcanbealleviatedbyatoehold,aleveragedbuyout,orafreezeoutmerger.28.1BackgroundandHistoricalTrends(1of3)MarketforCorporateControlAcquirer(orbidder)–thebuyerofthefirmTarget–thesellerofthefirmTheglobaltakeovermarketishighlyactive,averagingmorethan$1trillionperyearintransactionvalue.Table28.1LargestMergerTransactions,1998–2018(1of2)DateAnnouncedDateCompletedTargetNameAcquirerNameEquityValue(in$billion)Nov.1999June2000MannesmannA

GVodafoneAirTouchP

L

C203Oct.2004Aug.2005ShellTransport&TradingCo.RoyalDutchPetroleumCo.185Jan.2000Jan.2001TimeWarnerAmericaOnlineInc.182Sep.2015Oct.2015SABMillerP

L

CAnheuser-BuschInbevSAforwardslashNV.102Apr.2007Nov.2007ABN-AMROHoldingNVRFSHoldingsB

V98Mar.2006Dec.2006BellSouthCorp.AT&TInc.89Nov.1999June2000Warner-LambertCo.PfizerInc.89Dec.1998Nov.1999MobilCorp.ExxonCorp.85Jan.2000Dec.2000SmithKlineBeechamP

L

CGlaxoWellcomeP

L

C79Oct.2016June2018TimeWarnerInc.AT&TInc.79Feb.2006July2008SuezS

AGazdeFranceS

A75Table28.1LargestMergerTransactions,1998–2018(2of2)DateAnnouncedDateCompletedTargetNameAcquirerNameEquityValue(in$billion)Apr.1998Oct.1998CiticorpTravelersGroupInc.73July1998June2000G

T

ECorp.BellAtlanticCorp.71May1998Oct.1999AmeritechCorp.S

B

CCommunicationsInc.70June1998Mar.1999Tele-CommunicationsInc.(T

C

I)AT&TCorp.70Apr.2015Feb.2016BGGroupP

L

CRoyalDutchShellP

L

C69Nov.2014Mar.2015AllerganInc.ActavisP

L

C68Jan.2009Oct.2009WyethPfizerInc.67Jan.1999June1999AirTouchCommunicationsInc.VodafoneGroupP

L

C66Jan.2004Aug.2004AventisS

ASanofi-SynthelaboS

A66Oct.2015Sep.2016E

M

CCorp.DellInc.66Source:ThomsonReuters’S

D

C

M&Database28.1BackgroundandHistoricalTrends(2of3)MergerWavesPeaksofheavyactivityfollowedbyquiettroughsoffewtransactionsinthetakeovermarket28.1BackgroundandHistoricalTrends(3of3)Thegreatesttakeoveractivityoccurredinthe1960s,1980s,1990s,and2000s.1960sKnownastheconglomeratewave1980sKnownforthehostiletakeovers1990sKnownforthe“strategic”or“global”deals2000sMarkedbyconsolidationinmanyindustriesandthelargerroleplayedbyprivateequityFigure28.1FractionofU.S.PublicCompaniesAcquiredEachYear,1926–2018Source:Authors’calculationsbasedonCenterforResearchinSecuritiesPricesdataTypesofMergers(1of2)HorizontalmergerTargetandacquirerareinthesameindustryVerticalmergerTarget’sindustrybuysfromorsellstoacquirer’sindustryConglomeratemergerTargetandacquireroperateinunrelatedindustriesTypesofMergers(2of2)StockSwapTargetshareholdersareswappingoldstockfornewstockineithertheacquireroranewlycreatedmergedfirm.TermSheetSummaryofpriceandmethodofpaymentConsiderationpaidtotargetshareholderscanbeverycomplex.28.2MarketReactiontoaTakeover(1of3)InmostU.S.states,thelawrequiresthatwhenexistingshareholdersofatargetfirmareforcedtoselltheirshares,theyreceiveafairvaluefortheirshares.Asaconsequence,abidderisunlikelytoacquireatargetcompanyforlessthanitscurrentmarketvalue.Inpractice,mostacquirerspayapremiumonthecurrentmarketvalue.28.2MarketReactiontoaTakeover(2of3)AcquisitionPremiumPaidbyanacquirerinatakeover,itisthepercentagedifferencebetweentheacquisitionpriceandthepre-mergerpriceofatargetfirmResearchhasfound,asshownonthenextslide,thatacquirerspayanaveragepremiumof43%overthepre-mergerpriceofthetarget.Whenabidisannounced,targetshareholdersenjoyagainof15%onaverageintheirstockprice.Acquirershareholdersseeanaveragegainof1%,buthalfreceiveapricedecrease.Table28.2AverageAcquisitionPremiumandStockPriceReactionstoMergersSource:DatabasedonallU.S.dealsfrom1980to2005asreportedinHandbookofCorporateFinance:EmpiricalCorporateFinance,Vol.2,Chapter15,pp.291

430,B.E.Eckbo,ed.,Elsevier/North-HollandHandbookofFinanceSeries,2008.28.2MarketReactiontoaTakeover(3of3)Whydoacquirerspayapremiumoverthemarketvalueforatargetcompany?Althoughthepriceofthetargetcompanyrisesonaverageupontheannouncementofthetakeover,whydoesitriselessthanthepremiumofferedbytheacquirer?Whydoestheacquirernotconsistentlyexperienceapriceincrease?28.3ReasonstoAcquireLargesynergiesarebyfarthemostcommonjustificationthatbiddersgiveforthepremiumtheypayforatarget.Suchsynergiesusuallyfallintotwocategories:costreductionsandrevenueenhancementsCost-reductionsynergiesaremorecommonandeasiertoachievebecausetheygenerallytranslateintolayoffsofoverlappingemployeesandeliminationofredundantresources.Revenue-enhancementsynergies,however,aremuchhardertopredictandachieve.EconomiesofScaleandScope(1of2)EconomiesofScaleThesavingsalargecompanycanenjoyfromproducinggoodsinhighvolumethatarenotavailabletoasmallcompanyEconomiesofScopeSavingslargecompaniescanrealizethatcomefromcombiningthemarketinganddistributionofdifferenttypesofrelatedproductsEconomiesofScaleandScope(2of2)Acostassociatedwithanincreaseinsizeisthatlargerfirmsaremoredifficulttomanage.VerticalIntegration(1of2)VerticalIntegrationReferstothemergeroftwocompaniesinthesameindustrythatmakeproductsrequiredatdifferentstagesoftheproductioncycleVerticalIntegration(2of2)Amajorbenefitofverticalintegrationiscoordination.Forexample,AppleComputersmakesboththeoperatingsystemandthehardware.However,notallnotallsuccessfulcorporationsareverticallyintegrated.Forexample,Microsoftmakestheoperatingsystembutnotthecomputers.ExpertiseFirmsoftenneedexpertiseinparticularareastocompetemoreefficiently.Particularlywithnewtechnologies,hiringexperiencedworkersdirectlymaybedifficult.Itmaybemoreefficienttopurchasethetalentasanalreadyfunctioningunitbyacquiringanexistingfirm.MonopolyGains(1of2)Itisoftenarguedthatmergingwithoracquiringamajorrivalenablesafirmtosubstantiallyreducecompetitionwithintheindustryandtherebyincreaseprofits.Mostcountrieshaveantitrustlawsthatlimitsuchactivity.MonopolyGains(2of2)Whileallcompaniesinanindustrybenefitwhencompetitionisreduced,onlythemergingcompanypaystheassociatedcosts(from,forinstance,managingalargercorporation).Thismaybewhy,alongwithexistingantitrustregulation,thatthereisalackofconvincingevidencethatmonopolygainsresultfromthereductionofcompetitionfollowingtakeovers.EfficiencyGainsAnotherjustificationacquirersciteforpayingapremiumforatargetisefficiencygains,whichareoftenachievedthroughaneliminationofduplication.Acquirersoftenarguethattheycanrunthetargetorganizationmoreefficientlythanexistingmanagementcould.Althoughidentifyingpoorlyperformingcorporationsisrelativelyeasy,fixingthemisanothermatterentirely.TaxSavingsfromOperatingLossesAconglomeratemayhaveataxadvantageoverasingle-productfirmbecauselossesinonedivisioncanoffsetprofitsinanotherdivision.Tojustifyatakeoverbasedonoperatinglosses,managementwouldhavetoarguethatthetaxsavingsareoverandabovewhatthefirmwouldsaveusingcarrybackandcarryforwardprovisions.TextbookExample28.1(1of2)TaxesforMergedCorporationProblemConsidertwofirms,YingCorporationandYangCorporation.Bothcorporationswilleithermake$50millionorlose$20millioneveryyearwithequalprobability.Theonlydifferenceisthatfirms’profitsareperfectlynegativelycorrelated.Thatis,anyyearYangCorporationearns$50million,YingCorporationloses$20million,andviceversa.Assumethatthecorporatetaxrateis34%.Whatarethetotalexpectedafter-taxprofitsifthetwofirms’whentheyaretwoseparatefirms?Whataretheexpectedafter-taxprofitsifthetwofirmsarecombinedintoonecorporationcalledYing-YangCorporation,butarerunastwoindependentdivisions?(Assumeitisnotpossibletocarrybackorforwardanyloses.)TextbookExample28.1(2of2)SolutionLet’sstartwithYingCorporation.Intheprofitablestate,thefirmmustpaycorporatetaxes,soafter-taxprofitsareNotaxesareownedwhenthefirmreportsloses,sotheexpectedafter-taxprofitsofYingCorporationareBecauseYangCorporationhasidenticalexpectedprofits,itsexpectedprofitsarealso$6.5million.Thus,theexpectedprofitofbothcompaniesoperatedseparatelyis$13million.Themergedcorporation,Ying-YangCorporation,alwaysmakesapretaxprofitequaltoAftertaxes,expectedprofitsarethereforeSoYing-YangCorporationhassignificantlyhigherafter-taxprofitsthanthetotalstand-aloneafter-taxprofitsofYingCorporationandYangCorporation.AlternativeExample28.1(1of4)ProblemConsidertwofirms,Alpha,Inc.andOmegaCorporation.Bothcorporationswilleithermake$20millionorlose$10millioneveryyearwithequalprobability.Thefirms’profitsareperfectlypositivelycorrelated.Thatis,anyyearAlpha,Inc.earns$20million,OmegaCorporationalsomakes$20million,andthesameistrueofalosingyear.Assumethatthecorporatetaxrateis34%.AlternativeExample28.1(2of4)ProblemWhatarethetotalexpectedafter-taxprofitsofbothfirmswhentheyaretwoseparatefirms?Whataretheexpectedafter-taxprofitsifthetwofirmsarecombinedintoonecorporationcalledAlpha-OmegaCorporationbutarerunastwoindependentdivisions?(Assumeitisnotpossibletocarrybackorcarryforwardanylosses.)AlternativeExample28.1(3of4)SolutionLet’sstartwithAlpha,Inc.Intheprofitablestate,thefirmmustpaycorporatetaxes,soafter-taxprofitsaremillion.Notaxesareowedwhenthefirmreportslosses,sotheexpectedafter-taxprofitsofAlpha,Inc.aremillion.BecauseOmegaCorporationhasidenticalexpectedprofits,itsexpectedprofitsarealso$1.6million.Thus,theexpectedprofitofbothcompaniesoperatedseparatelyis$3.2million.AlternativeExample28.1(4of4)SolutionThemergedcorporation,Alpha-OmegaCorporation,willmake$26.4millionaftertaxesintheprofitablestateandwilllose$10millionintheunprofitablestate.Aftertaxes,expectedprofitsarethereforeSoAlpha-OmegaCorporationhasthesameafter-taxprofitsasthetotalstandaloneafter-taxprofitsofAlpha,Inc.andOmegaCorporation.Diversification(1of4)RiskReductionLikealargeportfolio,largefirmsbearlessunsystematicrisk,sooftenmergersarejustifiedonthebasisthatthecombinedfirmislessrisky.Aproblemwiththisargumentisthatitignoresthefactthatinvestorscanachievethebenefitsofdiversificationthemselvesbypurchasingsharesinthetwoseparatefirms.Diversification(2of4)DebtCapacityandBorrowingCostsAllelsebeingequal,largerfirmsaremorediversifiedand,therefore,havealowerprobabilityofbankruptcy.Theargumentisthatwithamerger,thefirmcanincreaseleverageandtherebyloweritscostsofcapital.Duetomarketimperfectionslikebankruptcy,afirmmaybeabletoincreaseitsdebtandenjoygreatertaxsavingswithoutincurringsignificantcostsoffinancialdistressbymerginganddiversifying.Gainsmustbelargeenoughtooffsetanydisadvantagesofrunningalarger,lessfocusedfirm.Diversification(3of4)AssetAllocation.Adiversifiedconglomeratemaybenefitbybeingabletoquicklyreallocateassetsacrossindustries.Forexample,thefirmmayredeploymanagerialtalenttowhereitismostneededtoexploitemergingopportunities.Ontheotherhand,agencycostsmayleadtotheoppositeresult:profitabledivisionsmaysubsidizemoney-losingonesforlongerthanisoptimal.Diversification(4of4)LiquidityShareholdersofprivatecompaniesoftenhaveadisproportionateshareoftheirwealthinvestedintheprivatecompany.Theliquiditythatthebidderprovidestotheownersofaprivatefirmcanbevaluableandoftenisanimportantincentiveforthetargetshareholderstoagreetothetakeover.EarningsGrowth(1of2)Itispossibletocombinetwocompanieswiththeresultthattheearningspershareofthemergedcompanyexceedthepre-mergerearningspershareofeithercompany,evenwhenthemergeritselfcreatesnoeconomicvalue.TextbookExample28.2(1of2)MergersandEarningsperShareProblemConsidertwocorporationsthatbothhavingearningsof$5pershare.Thefirstfirm,OldWorldEnterprises,isamaturecompanywithfewgrowthopportunities.Ithas1millionsharesthatarecurrentlyoutstanding,pricedat$60pershare.Thesecondcompany,NewWorldCorporation,isaYoungcompanywithmuchmorelucrativegrowthopportunities.Consequently,ithasahighervalue:Althoughithasthesamenumberofsharesoutstanding,itsstockpriceis$100pershare.AssumeNewWorldacquiresOldWorldusingitsownstock,andthetakeoveraddsnovalue.Inaperfectmarket,whatisthevalueofNewWorldaftertheacquisition?Atcurrentmarketprices,howmanysharesmustNewWorldoffertoOldWorld’sshareholdersinexchangefortheirshares?Finally,whatareNewWorld’searningspershareaftertheacquisition?TextbookExample28.2(2of2)SolutionBecausethetakeoveraddsnovalue,thepost-takeovervalueofNewWorldisjustthesumofthevaluesofthetwoseparatecompanies:million.ToacquireOldWorld,NewWorldmustpay$60million.Atitspre-takeoverstockpriceof$100pershare,thedealrequiresissuing600,000shares.Asgroup,OldWorld’sshareholderswillthenexchange1millionsharesinOldWorldfor600,000sharesinNewWorld,oreachshareholderswillget0.6millionshareinNewWorldforeach1shareinOldWorld.NoticethatthepricepershareofNewWorldstockisthesameafterthetakeover:ThenewvalueofNewWorldis$160millionandthereare1.6millionsharesoutstanding,givingitastockpriceof$100pershare.However,NewWorld’searningspersharehavechanged.Priortothetakeover,bothcompaniesearnedThecombinedcorporationthusearns$10million.Thereare1.6millionsharesoutstandingafterthetakeover,soNewWorld’spost-takeoverearningspershareareBytakingoverOldWorld,NewWorldhasraiseditsearningpershareby$1.25.AlternativeExample28.2(1of2)ProblemNewCoisconsideringpurchasingOld,Ltd.NewCo’scurrentpriceis$75pershare,anditsearningspershareare$5.Afterthetakeover,NewCoexpectsitssharepricetoincreaseto$80anditsearningspersharetoincreaseto$7.CalculateNewCo’sprice-earningsratiobeforeandafterthetakeover.AlternativeExample28.2(2of2)SolutionTheprice-earningsratiohasdroppedtoreflectthefactthataftertakingoverOld,Ltd.,moreofthevalueofNewCocomesfromearningsfromcurrentprojectsthanfromitsfuturegrowthpotential.EarningsGrowth(2of2)Mergingacompanywithlittlegrowthpotentialandacompanywithhighgrowthpotentialcanraiseearningspershare.However,themergermayaddnoeconomicvalue.Theprice-earningsratioreflectsthis.TextbookExample28.3(1of2)MergersandthePrice-EarningsRatioProblemCalculateNewWorld’sprice-earningsratiobeforeandafterthetakeoverdescribedinExample28.2.TextbookExample28.3(2of2)Beforethetakeover,NewWorld’sprice-earningsratioisAfterthetakeover,NewWorld’sprice-earningsratioisThePrice-earningsratiohasdroppedtoreflectthefactthattakingoverOldWorld,moreofthevalueofNewWorldcomesfromearningsfromcurrentprojectsthanfromitsfuturegrowthpotential.ManagerialMotivestoMergeConflictsofInterestManagersmayprefertorunalargercompanyduetoadditionalpayandprestige.OverconfidenceRoll’s“hubrishypothesis”maintainsthatoverconfidentC

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spursuemergersthathavelowchanceofcreatingvaluebecausetheybelievetheirabilitytomanageisgreatenoughtosucceed.28.4ValuationandtheTakeoverProcess(1of2)ValuationAkeyissuefortakeoversisquantifyinganddiscountingthevalueaddedasaresultofthemerger.Forsimplicity,anyadditionalvaluecreatedwillbereferredtoasthetakeoversynergies.28.4ValuationandtheTakeoverProcess(2of2)ValuationThepricepaidforatargetisequaltothetarget’spre-bidmarketcapitalizationplusthepremiumpaidintheacquisition.Ifthepre-bidmarketcapitalizationisviewedasthestand-alonevalueofthetarget,thenfromthebidder’sperspective,thetakeoverisapositive-N

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Vprojectonlyifthepremiumitpaysdoesnotexceedthesynergiescreated.TheOffer(1of6)Oncetheacquirerhascompletedthevaluationprocess,itisinthepositiontomakeatenderoffer.Notalltenderoffersaresuccessful.Oftenacquirershavetoraisethepricetoconsummatethedeal.TheOffer(2of6)Abiddercanuseoneoftwomethodstopayforatarget:cashorstock.Inacashtransaction,thebiddersimplypaysforthetarget,includinganypremium,incash.TheOffer(3of6)Abiddercanuseoneoftwomethodstopayforatarget:cashorstock.Inastock-swaptransaction,thebidderpaysforthetargetbyissuingnewstockandgivingittothetargetshareholders.Thebidderofferstoswaptargetstockforacquirerstock.ExchangeRatio.ThenumberofbiddersharesreceivedinexchangeforeachtargetshareTheOffer(4of6)Astock-swapmergerisapositive-N

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Vinvestmentfortheacquiringshareholdersifthesharepriceofthemergedfirmexceedsthepre-mergerpriceoftheacquiringfirmTheOffer(5of6)LetAbethepre-mergervalueoftheacquirer,Tbethepre-mergervalueofthetarget,andSbethevalueofthesynergiescreatedbythemergerIftheacquirerhassharesoutstandingbeforethemergerandissuesxnewsharestopayforthetarget,thentheacquirer’ssharepriceshouldincreasepost-acquisitionifTheOffer(6of6)xgivesthemaximumnumberofnewsharestheacquirercanofferandstillachieveapositiveN

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V:Thiscanbeexpressedasanexchangeratio:TextbookExample28.4(1of2)MaximumExchangeRatioinaStockTakeoverProblemAtthetimeSprintannouncedplanstoacquireNextelinDecember2004,Sprintstockwastradingfor$25pershareandNextelstockwastradingfor$30pershare.Iftheprojectedsynergieswere$12billion,andNextelhad1.033billionsharesoutstanding,whatisthemaximumexchangeratioSprintcouldofferinastockswapandstillgenerateapositiveN

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V?WhatisthemaximumcashofferSprintcouldmake?TextbookExample28.4(2of2)SolutionNextel’spremergermarkerwasThususingEquation28.5,Thatis,Sprintcouldofferupto1.665sharesofSprintstockforeachshareofNextelstockandgenerateapositiveN

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V.Foracashoffer,givensynergiesofSprintcouldofferupto$30+11.62=$41.62.Notethatthiscashamountequalsthecashvalueoftheexchangeoffer:AlternativeExample28.4(1of3)ProblemInJune2004,WachoviaannouncedplanstoacquireSouthTrust.Atthetime,Wachoviastockwastradingfor$42pershare,andSouthTruststockwastradingfor$35pershare,implyingapremergervalueofSouthTrustofapproximately$12billion.AlternativeExample28.4(2of3)ProblemIftheprojectedsynergieswere$2billion,whatisthemaximumexchangeratioWachoviacouldofferinastockswapandstillgenerateapositiveN

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V?AlternativeExample28.4(3of3)SolutionMerger“Arbitrage”(1of5)Onceatenderofferisannounced,theuncertaintyaboutwhetherthetakeoverwillsucceedaddsvolatilitytothestockprice.Thisuncertaintycreatesanopportunityforinvestorstospeculateontheoutcomeofthedeal.Merger“Arbitrage”(2of5)Risk-ArbitrageursTraderswho,onceatakeoverofferisannounced,speculateontheoutcomeofthedealMerger“Arbitrage”(3of5)InSeptember2001,H

PannouncedthatitwouldpurchaseCompaqbyswapping0.6325shareofH

PstockforeachshareofCompaqstock.Aftertheannouncement,H

Ptradedfor$18.87pershare,whilethepriceofCompaqwas$11.08pershare.Thus,Compaq’ssharepriceaftertheannouncementwas$0.8553belowtheimpliedvalueofH

P’soffer.Merger“Arbitrage”(4of5)Ifjustaftertheannouncement,arisk-arbitrageursimultaneouslypurchased10,000Compaqsharesandshortsold6325H

Pshares,hewouldnet$8553.Merger“Arbitrage”(5of5)Ifthetakeoverwassuccessfullycompletedontheoriginalterms,therisk-arbitrageurwouldpocketthe$8553asaprofit.Thispotentialprofitarisesfromthemerger-arbitragespread.Merger-ArbitrageSpreadThedifferencebetweenatargetstock’spriceandtheimpliedofferpriceNote:Itisnotatruearbitrageopportunitybecausethereisariskthatthedealwillnotgothrough.Figure28.2Merger-ArbitrageSpreadfortheMergerofH

PandCompaqTaxandAccountingIssues(1of6)Howtheacquirerpaysforthetargetaffectsthetaxesofboththetargetshareholdersandthecombinedfirm.Anycashreceivedinfullorpartialexchangeforsharestriggersanimmediatetaxliabilityfortargetshareholders.Theywillhavetopayacapitalgainstaxonthedifferencebetweenthepricepaidfortheirsharesinthetakeoverandthepricetheypaidwhentheyfirstboughttheshares.TaxandAccountingIssues(2of6)Iftheacquirerpaysforthetakeoverentirelybyexchangingbidderstockfortargetstock,thenthetaxliabilityisdeferreduntilthetargetshareholdersactuallyselltheirnewsharesofbidderstock.TaxandAccountingIssues(3of6)StepUpReferstoanincreaseinthebookvalueofatarget’sassetstothepurchasepricewhenanacquirerpurchasesthoseassetsdirectlyinsteadofpurchasingthetargetstockAnygoodwillcreatedcanbeamortizedfortaxpurposesover15years.TaxandAccountingIssues(4of6)Themethodofpayment(cashorstock)doesnotaffectthecombinedfirm’sfinancialstatementsforfinancialreporting.TaxandAccountingIssues(5of6)Thecombinedfirmmustmarkupthevalueassignedtothetarget’sassetsonthefinancialstatementsbyallocatingthepurchasepricetotargetassetsaccordingtotheirfairmarketvalue.TaxandAccountingIssues(6of6)Ifthepurchasepriceexceedsthefairmarketvalueofthetarget’sidentifiableassets,thentheremainderisrecordedasgoodwillandisexaminedannuallybythefirm’saccountantstodeterminewhetheritsvaluehasdecreased.BoardandShareholderApproval(1of2)Foramergertoproceed,boththetargetandtheacquiringboardofdirectorsmustapprovethedealandputthequestiontoavoteoftheshareholdersofthetarget.FriendlyTakeoverWhenatarget’sboardofdirectorssupportsamerger,negotiateswithpotentialacquirers,andagreesonapricethatisultimatelyputtoashareholdervote.BoardandShareholderApproval(2of2)HostileTakeoverAsituationinwhichanindividualororganizationpurchasesalargefractionofatargetcorporation’sstockandindoingsogetsenoughvotestoreplacethetarget’sboardofdirectorsandC

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OCorporateRaiderTheacquirerinahostiletakeover28.5TakeoverDefensesForahostiletakeovertosucceed,theacquirermustgoaroundthetargetboardandappealdirectlytothetargetshareholders.ProxyFightInahostiletakeover,theacquirerattemptstoconvincethetarget’sshareholderstounseatthetarget’sboardbyusingtheirproxyvotestosupporttheacquirers’candidatesforelectiontothetarget’sboard.PoisonPillsPoisonPillsAdefenseagainstahostiletakeoverItisarightsofferingthatgivesthetargetshareholderstherighttobuysharesineitherthetargetoranacquireratadeeplydiscountedprice.Becausetargetshareholderscanpurchasesharesatlessthanthemarketprice,existingshareholdersoftheacquirereffectivelysubsidizetheirpurchases,makingthetakeoversoexpensivefortheacquiringshareholdersthattheychoosetopassonthedeal.StaggeredBoardsStaggeredBoard(ClassifiedBoard)Inmanypubliccompanies,aboardofdirectorswhosethree-yeartermsarestaggeredsothatonlyone-thirdofthedirectorsareupforelectioneachyear.Abidder’scandidatewouldhavetowinaproxyfighttwoyearsinarowbeforethebidderhadamajoritypresenceonthetargetboard.Figure28.3DisappearingDefensesSource:FactsetWhiteKnightsWhiteKnightAtargetcompany’sdefenseagainstahostiletakeoverattemptinwhichitlooksforanother,friendliercompanytoacquireitWhiteSquireAvariantofthewhiteknightdefense,inwhichalarge,passiveinvestororfirmagreestopurchaseasubstantialblockofsharesinatargetwithspeci