mergers--background mergers are capital budgeting problems, but: benefits like “strategic fits”...
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Mergers--Background
Mergers are capital budgeting problems, but: Benefits like “strategic fits” hard to quantify Accounting, tax, and regulatory issues can be very complex Corporate control issues arise Sometimes involve “unfriendly” transactions
Mergers--legal forms Merger or consolidation Acquisition of stock Acquisition of assets
Mergers--jargon Firm seeking to buy or merge is the “bidder” Firm that is sought is the “target” Payment (cash or securities) is the “consideration”
How to Make a Merger Work
Are there any rules of thumb for merger success? Consider the following.
1. Don’t rush the wedding - do your homework carefully to prevent morning-after surprises.
2. Know what you’re buying - not just the financials, but the corporate culture.
3. Adopt each partner’s best practices - don’t assume the bigger company or the acquirer has all the answers.
4. Be honest with employees about how a merger will affect them - start early and communicate honestly with them.
5. Take the time to do internal recruiting - make sure the managers you want to keep don’t go wandering off to a competitor.
Adapted from “How to Make a Merger Work”, Fortune magazine, January 24, 1994.
The Mechanics of Mergers & Acquisitions
Merger Advantages
Simplicity (buyer assumes all assets and liabilities)
Disadvantages
All liabilities assumed (including potential litigation)
Two thirds of shareholders (most states) of both firms must approve
Dissenting shareholders can sue to receive their “fair” value
Management cooperation needed
The Mechanics of Mergers & Acquisitions (concluded)
II. Acquisition of Assets Advantages
Buyer acquires assets with no minority shareholders
Only 50% of seller’s shareholders need approve Disadvantages
Individual transfer of assets may be costly in legal fees
III. Acquisition of Stock (Tender Offer) Advantage
No shareholder (or even management) approval necessary
Disadvantage
Integration difficult without 100% of shares
Resistance can raise price
Minority holdouts
What is a “Takeover?”
Acquisition
Proxy contest
Going private
Merger or consolidation
Acquisition of stock
Acquisition of assetsTakeovers
Classifying acquisitions
Horizontal same industry
Vertical different steps in production/distribution process
Conglomerate unrelated lines of business
Taxes and acquisitions
Sale of shares (taxable) versus exchange (non-taxable)
For tax-free status, in general: Must be a continuation of equity interest Must be a business (i.e., non-tax) reason for acquisition
Which is better--Taxable or tax-exempt? Capital gains effect Write-up effect
Tax status versus accounting treatment Purchase accounting Pooling of interests
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ADDITIONAL TEMPLATE PREVIEWS
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Anatomy of LOI - Ver1
Anatomy of LOI - Ver2
Asset vs. Stock Purchase
Purchase Price Payment Considerations
Ways to Structure the Deal - Ver1
Ways to Structure the Deal - Ver2
Ways to Structure the Deal - Ver3
Structuring Effective Earnouts
Tax Implications
What is a Reverse Merger?
LOI Tools and Templates Full Buyout
Asset Purchase - Ver1
Asset Purchase - Ver2
Stock For Cash
Stock For Stock
Stock For Cash & Stock
Earnout Partial Investments
Series A Preferred
Series B Preferred Presentations
Presenting the Deal - Ver1
Presenting the Deal - Ver2 (No Preview)
Presenting the Deal - Ver3
Presenting the Deal - Ver4
Presenting the Deal - Ver5
Business Sale Presentation
Buying or Selling a Business Step-by-Step Procedure - Click Here To View
