財(cái)務(wù)管理基礎(chǔ)課件：External Growth through Mergers

ExternalGrowththroughMergers

ChapterOutlineMotivesformergersAcquiringcompaniesthroughcashortheexchangeofsharesPotentialimpactofmergersonearningspershareandassessmentofstockvalueDiversificationbenefitsUnfriendlybuyoutsLargestAcquisitionsEverBusinessCombinationsAbusinesscombinationmaytaketheformofeitheramergeroraconsolidationMerger

AcombinationoftwoormorecompaniesinwhichtheresultingfirmmaintainstheidentityoftheacquiringfirmConsolidation

TwoormorecompaniescombinedtoformanewentityMightbeutilizedwhenthefirmsareofequalsizeandmarketpowerFinancialMotivesMergerallowsacquiringfirmstoenjoyapotentiallydesirableportfolioeffectAchievesriskreductionwhilemaintainingthefirm’srateofreturnVariabilityinperformancemaybereducedforthebusinessfirmswithoppositephasesofthebusinesscyclePortfoliodiversificationbecomescomplicatedwithrespecttopracticalitiesItimprovesthefinancingpostureasaresultofexpansionFinancialMotives(cont’d)LargerfirmsmayenjoygreateraccesstothecapitalmarketAttractslargerandmoreprestigiousinvestmentbankerstohandlefuturefinancingGreaterfinancingmayalsobeinherentinthemergeritself,especiallywhen:TheacquiredfirmhasthestrongcashpositionAlowdebt-equityratiothatcanbeusedtoexpandborrowingbytheacquiringfirmTaxLossCarryforwardMaybeavailableinamergerifoneofthefirmshaspreviouslysustainedataxlossAssumingFirmAacquiresFirmB,whichhasa$220,000taxlosscarryforward,FirmA’sbefore-taxincomewithoutmergeris$300,000Theassumptionisthatthefirmhasa40%taxrate.ThetaxshieldvalueofacarryforwardtoFirmAisequaltothelossinvolvedtimesthetaxrate($220,000×40%=$88,000)Thecompanycanreduceitstotaltaxesfrom$120,000to$32,000,andthuscouldpay$88,000forthecarryforwardaloneTheincomeavailabletostockholdersalsohasincreasedby$88,000FirmB’santicipatedoperatinggainsandlossesforfutureyearsmustalsobeconsideredinanalyzingthedealTaxLossCarryforward(cont’d)NonfinancialMotivesDesiretoexpandmanagementandmarketingcapabilities,andacquisitionofnewproductsMaybedirectedtowardverticalorhorizontalintegrationAntitrustpolicygenerallyprecludestheeliminationofcompetitionManagementmotivation-synergisticeffect:EliminatingoverlappingfunctionsMeshingtogethervariousengineeringcapabilitiesMotivesofSellingStockholdersDesiretoreceivetheacquiringcompany’sstockStockholderscandiversifytheirholdingsintonewinvestmentsifcashisofferedOfficersmayreceiveattractivepostmergermanagementcontractsalongwithdirectorshipoftheacquiringfirmCashPurchasesInsteadofpurchasingnewplantormachinery,thepurchasermayopttoacquireagoingconcernAssumethatFirmAisconsideringtheacquisitionofFirmBfor$1million.FirmBhasanexpectedcashflow(after-taxearningsplusdepreciation)of$100,000peryearforthenext5yearsand$150,000peryearforthe6ththroughthe20thyearsThesynergisticbenefitswilladdupto$10,000peryeartocashflowFirmBhasa$50,000losscarryforwardforimmediateuse.Witha40%taxrate,thiswillshield$20,000ofprofitfromtaxesFirmAhasa10%costofcapital,andthisisassumedtoremainstablewiththemergerCashPurchases(cont’d)**Thepresentvaluefactorforthefirstfiveyearsisbasedonn=5,i=10%.Forthe6ththroughthe20thyears,thepresentvaluefactoristakenforn=20,i=10%andsubtractthepresentvaluefactorforn=5,i=10%*CashPurchases(cont’d)Totalpresentvalueofinflows……..$1,172,690Netcashoutflow…...980,000Netpresentvalue…..$192,690TheacquisitionseemslikeadesirableoptionwithapositivenetpresentvalueStock-for-StockExchangeEmphasisislaidonearningspershareimpactofexchangingsecuritiesShareholdersoftheacquiredfirmareconcernedwith:TheinitialpricetheyarepaidfortheirsharesTheoutlookfortheacquiringfirmAnalysisishencemademainlyfromtheviewpointofthefirmFinancialData

onPotentialMergingFirmsSignificantfinancialinformationonthefirmsbeforethemergerisprovidedbelowPostmergerEarningsPerShareEarningspershareofExpandCorporationhaveincreasedasaresultofthemergerWheneverafirmacquiresanotherentitywhoseP/Eratioislowerthanitsown,thereisanimmediateincreaseinearningspersharePossibilitiesofMergersbasedonStock-for-StockExchangesAcquiringfirmincreasesitsimmediateearningspershareasaresultofthemerger:ButmayslowitsfuturegrowthrateifitisbuyingalessaggressivefirmAcquiringfirmmaydiluteimmediatepostmergerearningspersharebypayingahighprice:ButincreaseitspotentialgrowthrateforthefutureasaresultofacquiringarapidlygrowingfirmPortfolioEffectThereductionorincreaseinriskmayinfluencetheP/EratioasmuchasthechangeinthegrowthrateIftheoverallriskisreduced,thereisanincreaseinpostmergerP/EratioandmarketvaluemayincreaseBusinessriskreductioncanbeachievedbyacquiringanotherfirmthatisinfluencedbyasetoffactorsoppositefromthosethatinfluencetheacquiringfirmFinancialriskreductioncanbeachievedbyrestructuringthepostmergerfinancialarrangementstoincludelessdebtIfthereislessriskinafirm,theinvestormaybewillingtoassignahighervaluation,thusincreasingtheP/EratioRisk-ReductionPortfolioBenefitsAccountingConsiderations

inMergersandAcquisitionsPoolingofinterests(priorto2001):Acquiringfirmissuesonlycommonstockinexchangeformostlyalloftheotherfirm’svotingstockAcquiredfirm’sstockholdersmaintainanownershippositioninthesurvivingfirmCombinedentitydoesnotintendtodisposeofalargeportionoftheassetsofthemergedfirmswithintwoyearsCombinationiseffectedinasingletransactionAccountingConsiderations

inMergersandAcquisitions(cont’d)PurchaseofAssets(priorto2001)GoodwillmaybecreatedwhenpurchaseofassetsisinvolvedNecessarywhenthetenderofferisincash,bonds,preferredstock,orcommonstockwithrestrictedrightsFASBputSFAS141andSFAS142inplaceinJune–2001toeliminatepoolingofinterestsaccountingandtochangethetreatmentofgoodwillNolongermustmerger-relatedgoodwillbeamortized,butratheritisplacedonthebalancesheetoftheacquiringfirmatthetimeofacquisitionMerger-relatedgoodwillisnotwrittendownunlessitisimpairedEvaluationofGoodwillFairvalueofgoodwillcanbedeterminedbytakingpresentvalueoffuturecashflows,andsubtractingliabilitiesIfthegoodwillisimpaired,partofitmustimmediatelybewrittendownagainstoperatingincomeTheFASBalsoallowscompaniestotakeaone-timewrite-downofallpastgoodwillimpairmentsatthetimeofadoptionbythefirmNegotiatedversusTenderedOffersInnegotiatedoffers,anexchangeratioisagreeduponbasedontheproductlines,thequalityofassets,andthefuturegrowthprospectsThetakeovertenderofferinvolvesanattemptbyacompanytoacquireatargetfirmagainstitswillThe“Saturdaynightspecial”referstoasurpriseoffermadejustbeforethemarketclosesfortheweekendAvoidingTenderedOffersManagementmayturntoawhiteknightforsalvationAwhiteknightrepresentsathirdfirmthatmanagementcallsontohelpitavoidtheinitialunwantedtenderofferMovingthecorporateofficestostatesthathavetoughprenotificationandprotectionprovisionsinregardtotakeoverbidsBuyingbacksomeoftheirownsharestorestricttheamountofstockavailableforthetakeoverProtectiveMeasuresagainst

aTakeoverTenderOfferEncouragingemployeestobuystockunderthepensionplansIncreasingdividendsStaggeringtheelectionofmembersoftheboardsofdirectorsNevergetcaughtwithtoolargeacashpositionPoisonpillisalsoaneffectivedeviceforprotectionPremiumOffers

andStockPriceMovementsMostmergersarenotacquiredattheircurrentmarketvalueAmergerpremiumof40-60%(ormore)ispaidoverthepremergerpriceoftheacquiredcompanyDisadvantage:MuchoftheupsidemovementmayoccurbeforethepublicannouncementAdvantage:GoodprofitscanbemadeafterthemergerisaccomplishedPremiumOffersandStockPriceMovem