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Chapter 32
Eighth Edition
Mergers
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Topics Covered
Sensible Motives for Mergers Some Dubious Reasons for Mergers Estimating Merger Gains and Costs The Mechanics of a Merger Takeover Battles and Tactics Mergers and the Economy
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Recent Mergers
Industry Cement Cement Petrochemicals Petrochemicals Technology Technology Acquiring Company Holdcem Cements Pvt Limited Grasim Indian Oil Reliance Industries Oracle Global (Mauritius) Maxis Communications Berhad and Prathap Reddy (promoter of Apollo Hospital) Selling Company Ambuja Cement Ultratech Cement IBP Controlling Stake in IPCL I-Flex Solutions Aircel Payment (Rs. Crores) 4885 1641 1841 2638 3955 4860
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Reduces costs
Rs.
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S
S S
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Firm B
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World Enterprises (before merger) EPS Price per share P/E Ratio Number of shares Total earnings Total market value Current earnings per dollar invested in stock $ $ 2.00 40.00 20 100,000 200,000 4,000,000
$ $
0.05 $
0.10 $
0.067
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????
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PVA Rs.200 PVB Rs.50 Gain PVAB Rs.25 Cost Cash paid PVB 65 50 Rs.15million
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Economic Gain = PV(increased earnings) New cash flows from synergies discount rate
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Phillips Case
Philips balance sheet was dramatically changed by its leveraged restructuring (figures in $billions).
1985 Current assets Fixed assets Other Total assets $3.10 10.30 0.60 14.00
1984 $4.60 11.20 1.20 17.00 Current liabilities Long-term debt Other long-term liabilities Equity Total liabilities
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Takeover Methods
Tools Used To Acquire Companies
Proxy Contest Tender Offer
Acquisition
Merger
Leveraged Buy-Out
Management Buy-Out
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Takeover Defenses
White Knight - Friendly potential acquirer sought by a target company threatened by an unwelcome suitor. Shark Repellent - Amendments to a company charter made to forestall takeover attempts. Poison Pill - Measure taken by a target firm to avoid acquisition; for example, the right for existing shareholders to buy additional shares at an attractive price if a bidder acquires a large holding.
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Web Resources
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