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Unit 7 Corporate Control and M&A :!?:

The “Market for Corporate Control”: Mergers and Acquisitions

Mergers

It is True That, Economies of scope and economies of scale can be motivating reasons behind a merger.

Market-value-adding (MVA) motivation for pursuing a merger or acquisition?

Desire for diversification

Utilization of synergies

The M&A market is also refered to as a market for Corporate controls

It is a market where the rights to control and design a business are traded

A Merger is the narrowest form of business Consolidation.

Two Companies are Economically Combined.In the End there is only one legal entity left

Legal and economic union of two enterprises

Amalgamation

Absorption

The Criteria to Differentiate mergers is the abandonement of legal independence

Fusion By Absorption

Fusion Through Start-up

Acquisition

It is Second Type Of Consolidation

The Purchase Of Property Rights is Characteristic for Acquisitions

Divided into Two Types

Asset Deals

Under a/an .... deal, the target enterprise sells its

individual assets to the buyout firm.

An asset deal maximizes cash flow as the purchase price

is distributed across individual assets and liabilities.

Share Deal

A share deal occurs if a company is sold through the transmission of its shares

Tender offer

The term "tender offer" describes a public bid to a company's shareholders, not a private one, typically for a significant percentage of shares.

Goal

The goal of a tender offer is often to achieve a full or partial takeover of the target company

In case of an acquisition of a listed company, The acquiring company makers a so Called Tender offer (Public Offer) to the target object and it's shareholders

Tender offer is limited in time and is Designed to increase

the pressure of the decision-making on the shareholders of the target company

The tender offer is, in most cases, higher than the current market value to facilitate

acceptance by the shareholders

Usually, the tender offer must meet a minimum acceptance rate. Later on,

there may be a cash out merger or a squeeze-out

Cooperation

Improving the competitiveness of the companies involved is a Key motive.

Basic Categories

Joint Venture

Joint ventures are business undertakings ventures consisting of multiple companies,

with or without equity participation.

The development of new markets is the central motive

It is distinguished between contractual joint ventures and equity joint ventures

An equity joint venture is a form of bilateral cooperation that results from the creation of a new,

independent company by several parent companies

A contractual joint venture is not a merger, as

only contractual agreements between the companies involved are made

Co-operation (Strategic alliance)

A cooperation is a loose collaboration arrangement between businesses.

Similar to joint ventures, this form of cooperation is based on

capital-related or contractual cooperation elements

In the past, this form of cooperation was usually found

between individual areas of a value creation chain.

New trend: Formation of networks (consisting of several strategic alliances)

under the leadership of a company.

Reasons for strategic alliances:

Improved market access

Improved ability to innovate

Improved economies of scale

Improved cost structure

Improved delivery capability

Supply Agreement

Supply agreements are a form of cooperation between companies in a value chain,

but at different levels

Manifestation: contractual agreements or partnership agreements

Form: A network with a general contractor concludes an agreement with a customer.

The general contractor owes the performance, but is also liable for and owner of the right to compensation.

In the internal relationship of the network, there are further contractual obligations to regulate

both the provision of services and the reimbursement between the network partners.

A cooperation is a loose collaboration, voluntary, mostly short-term form of business

consolidation

Motivations for M&A Transactions

Related to Market Value Enhansing

Portfolio Theory (Diversification)

Market for Corporate Control (Undervaluation, reorganization)

Synergy Hypothesis (Expertise transfer, centralization)

Exploiting opportunity for arbitrage (Speculative)

Not Related To Enhancing Market Value

Management Motivations (Company Size, influence,prestige)

Principle-Agent Problem

Seller Motivations

Financial Problems

Expansion

Funds

Cash-out

reorganization

Shareholder Dispuites

Succession

Phases of M&A Transactions

Pre Merger Phase

Planning & Analysis

Transaction Phase

NDA Agreements

LOI (Letter of Intent)

Due-diligence

Purchase agreement and Clossing

Integration Phase

Influence on Sucesses

Critical Factors

Preparation

Coordination

Control

Culture

Organization

Communication

Personal

Management

Customers

Knowledge

Corporate Cutural Clash ("Merger Syndrome")

Study Goal

what forms of joint ventures exist.

the motivations that commonly drive company takeovers.

what the ideal structure for a M&A transaction is.

what “M&A” means.

what “corporate control” means.