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SMMCG3 [CS-2] Corporate Transactions, G3 (DSEAS4 Andrew, IBS3 Henry, IBS3…
SMMC
G3
[CS-2] Corporate Transactions
Ｍergers and Acquisitions
Distinction
Ｍergers
less sharp and a lot more subjective
fuzzy🧐
combining two companies that are roughly of a similar standing
friendly
Ex.
Amazon Whole Foods merger
Acquisitions
outright purchases or takeovers of another company
friendly
unfriendly
hostile move
Ex.
Broadcom made $117 billion unsolicited offer to buy Qualcomm
disscussion
create value?
better deal than they're getting in the stock market
Short term
Long term
Significant Decline
destroying value
Why do M&A
Good reason✔
🏃🏾♂️
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a very well honed acquisition and integration capability
competitive disadvantage
Bad reason❌
principal agent problem
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diversification
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big payday from being acquired
managerial hubris
On average
neutral
efficient market wall
picking so-called good companies
cannot expect to make a better rate
pay more than the fair market value
How does a company justify overpaying :question:
through
Organizational capabilities
combination
create
Synergies
the key to creating value surplus
when M&As
help the acquirer develop new capabilities
Enhancement
Stretching strategy
apply the acquirer's to the target's business
Leveraging strategy
:arrow_right:
Acquirer Firm
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:!!:
challenge
Inability to integrate the two firms
:arrow_right:
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How to avoid :question:
3 more items...
Acquirer
winner's curse
in a competitive bidding war
highest bidder to get the target
more optimistic evaluation of their target relative
Divestiture
Three divestiture modes
Spin-off 轉股
The business unit is separated completely from the parent company
Shares are distributed to the parent shareholders
Different from
Split-off
The parent shareholders are given the option to exchange their shares for that of the unit
For the stock market
Create the most value
&
Have the largest
Transaction
Carve-out
The parent company sells part of its ownership in a unit for cash
IPO(Initial Public Offerings) involved
Which shares of a private company are made available to the public for the first time
Usually keeps more than
50%
ownership to effective control the company
For the stock market
Stock market price
Increase in about
1.2%~1.3%
Unit sales
Be simply sold to another firm for a cash compensation
Example:
ITT
Company
Sell or it could have sold say, 40% of the shares and Xylem through an IPO and pocketed the cash
Created two separate companies, Xylem and Exelis, and distributed their shares to its shareholders
Sell Exelis to another firm
Only change the ownership
Introduction
the configuration and coordination of a company's multi-business activities
actions that change the scope of the firm
alliances
divestitures
M&A
an alternative less incremental way
contemporaneous effects
Interaction or correlation within the same time period
complementarities or synergies or resource re-deployment opportunities
inter-organizational networks alliance networks
intertemporal effects
Interactions or correlations over different time periods
e.g.Google's foray into cell phones
resources
the Institute for Mergers, Acquisitions, and Alliances
Thomson ONE
IMAA
Securities Data Corporation
annual BCG M&A Report
SDC
Strategic Alliances
Type🧩
Relational contact📝
Licensing🎫
Equity alliance🛠️
Joint venture🤝
Separate third firm
One firm invests in the other
Exchange for royalties
Long-term contract
Benefit💡
Access to markets📡
Reduce asset commitment🗂️
Increasing flexibility
Learn from partner :silhouettes:
Upgrade own resources
Building common standard✏️
Microsoft、AT&T
Cloud、AI、5G
Problems🚨
Competitors gain opportunity
Managing risks
Moral hazard
Renegotiation
Making alliances work🌐
Partner selection
Seek a different benefit
Alliance structure
Contractual terms
Credible commitments
Making alliances
Build and reinforce trust
Learn from partner
:one::Acquisition
Overcome entry barrier
Cost of new products development
Increase market power
Increase speed to market
Problem in achieving success
Increase diversification
Inability to achieve synergy
Avoid excessive competition
Large debt
Lower risk
Inadequate evaluation of target
Reason for acquisition
Too much diversification
Avoid excessive competition
Too large
:two::Three Part Test
post-merger plan
Valuable synergy
Cost of acquisition
:three:The attributes of good M&A
Complementary resources & capibilities
Stretching&leveraging synergy
Objective evaluation & bidding
Avoiding overpaying
Maintain financial slack
Leverage
Well-manged implementation plan
Target view
:four:EX.John Deere
Core competence
Geography
M&A
JV
Technology
1918s Tractor business
1990s GPS
Capability-stretching acquisition
Spree
POSITION
Valuable acquisition
G3
DSEAS4 Andrew
IBS3 Henry
IBS3 Cathy
DSEAS3 Milly
DSEAS3 Jenny
DSEAS3 Cheryl
Carve-out
The slowest
Normal
:check:
The only way don't result in the parent transferring the entire ownership of the unit
Spin-off
Normal
For the largest
Units
Cash
:red_cross:
Execute
Features
Unit sales
The fastest
For smaller
:check:
The most common
Other
