Professional Documents
Culture Documents
1. Monopoly Theory
2. Efficiency Theory
3. Raider Theory
4. Valuation Theory
5. Empire building Theory
1. Monopoly Theory
Monopoly theory is planned
and executed to achieve
market share and market
power, at times including
pricing power
1.
2.
3.
Arcelor Steel
Arcelor Mittel
116 mn tonnes
36 mn tons
Arcelor Mittel
IPCL
2. Efficiency Theory
Efficiency theory is designed and executed to
achieve synergies
Types of Synergies
Manufacturing
Operations
Marketing
Financial
Revenue generation
Cost Reduction
Manufacturing
Marketing
Finance
Operations
3. Raider Theory
4. Valuation Theory
The M&A as being planned and executed by the acquirer
who has better information about the valuation of the
target company than the stock market and
Who estimates the real intrinsic value to be much higher
than the present value market capitalization of the
company.
4. Valuation Theory
Acquirer feels the intrinsic
Value to be higher than the
Market capitalization
Market is imperfect
Market is perfect
Information gap
Common
information
Substantial off
balance sheet or
substantial
undervalued non
operating assets
Cyclical pattern of
economy
Acquirer has
different view on
future cash flows
To encash upon
these assets
Dawn Raid
In this tactic, brokers acting on behalf of acquirer/raider swoop
down on stock exchanges at the time of its opening and buy all
available shares before the target company wakes up.
Limitations
An acquirer can get a sizable chunk in dawn raid only if the
scrip is highly liquid in comparison to its total paid up
capital
Shareholders when they sense the strategy, decide to hold
back the shares for better price and thereby reducing the
liquidity and making the dawn raid fail.
Dawn raid is more expensive
Not possible in India due to regulation
Bear Hug
The acquirer makes a very attractive tender offer to the
management of the target company for the latters
shareholders and asks them to consider the same offer in the
interest of the shareholders.
Such an offer is backed by the acquirers preparedness to make
a hostile open offer to the public shareholders if the board of
the target company rejects the offer
If the management rejects the offer, chances are there that the
public shareholders, particularly institutional shareholders
would favorably respond to the offer either through private
negotiated deals of in the subsequent hostile open offer made
by the acquirer.
Proxy fight
The acquirer convinces majority shareholders to issue proxy
rights in his favour, so that he can remove the existing
directors from the board of the target company and appoint his
own nominees thereby taking control of the target company.
This method of acquisition is not sustainable since the acquirer
will have to keep on acquiring proxies from the geographically
scattered shareholders
Not possible in India, since such removal or appointment of
Directors will be treated as an acquisition of control over the
target company requiring the acquirer to make an open offer.