logging in or signing up mergers irfan101 Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 1048 Category: Education License: All Rights Reserved Like it (0) Dislike it (0) Added: October 27, 2009 This Presentation is Public Favorites: 1 Presentation Description pppt Comments Posting comment... By: Panda.n (21 month(s) ago) good ppt Saving..... Post Reply Close Saving..... Edit Comment Close By: narendra1 (25 month(s) ago) thanks to the maker of the presentation and website that it helps viewers to get knowledge about various topics. kindly forward this presentation to my email id nschauhan1@yahoo.co.in Saving..... Post Reply Close Saving..... Edit Comment Close By: taleinwinter (29 month(s) ago) ppp Saving..... Post Reply Close Saving..... Edit Comment Close Premium member Presentation Transcript Slide 1: 29-0 CHAPTER 29 Mergers andAcquisitions 29.1 The Basic Formsof Acquisitions : 29-1 29.1 The Basic Formsof Acquisitions There are three basic legal procedures that one firm can use to acquire another firm: Merger or Consolidation Acquisition of Stock Acquisition of Assets Varieties of Takeovers : 29-2 Varieties of Takeovers Takeovers 29.2 The Tax Forms of Acquisitions : 29-3 29.2 The Tax Forms of Acquisitions If it is a taxable acquisition, selling shareholders need to figure their cost basis and pay taxes on any capital gains. If it is not a taxable event, shareholders are deemed to have exchanged their old shares for new ones of equivalent value. 29.3 Accounting for Acquisitions : 29-4 29.3 Accounting for Acquisitions The Purchase Method The source of much “goodwill” Pooling of Interests Pooling of interest is generally used when the acquiring firm issues voting stock in exchange for at least 90 percent of the outstanding voting stock of the acquired firm. Purchase accounting is generally used under other financing arrangements. 29.4 Determining the Synergyfrom an Acquisition : 29-5 29.4 Determining the Synergyfrom an Acquisition Most acquisitions fail to create value for the acquirer. The main reason why they do not lies in failures to integrate two companies after a merger. Intellectual capital often walks out the door when acquisitions aren't handled carefully. Traditionally, acquisitions deliver value when they allow for scale economies or market power, better products and services in the market, or learning from the new firms. 29.5 Source of Synergyfrom Acquisitions : 29-6 29.5 Source of Synergyfrom Acquisitions Revenue Enhancement Cost Reduction Including replacement of ineffective managers. Tax Gains Net Operating Losses Unused Debt Capacity Incremental new investment required in working capital and fixed assets DCFt = DRevt – DCostst – DTaxest – DCapital Requirementst 29.6 Calculating the Value of the Firm after an Acquisition : 29-7 29.6 Calculating the Value of the Firm after an Acquisition Qualitative issues Avoiding Mistakes Do not Ignore Market Values Estimate only Incremental Cash Flows Use the Correct Discount Rate Don’t Forget Transactions Costs 29.8 Two "Bad" Reasonsfor Mergers : 29-8 29.8 Two "Bad" Reasonsfor Mergers Earnings Growth Only an accounting illusion. Diversification Shareholders who wish to diversify can accomplish this at much lower cost with one phone call to their broker than can management with a takeover. Going Private and LBOs : 29-9 Going Private and LBOs If the existing management buys the firm from the shareholders and takes it private. If it is financed with a lot of debt, it is a leveraged buyout (LBO). The extra debt provides a tax deduction for the new owners, while at the same time turning the pervious managers into owners. This reduces the agency costs of equity Other Devices and the Jargonof Corporate Takeovers : 29-10 Other Devices and the Jargonof Corporate Takeovers Golden parachutes are compensation to outgoing target firm management. Crown jewels are the major assets of the target. If the target firm management is desperate enough, they will sell off the crown jewels. Poison pills are measures of true desperation to make the firm unattractive to bidders. They reduce shareholder wealth. One example of a poison pill is giving the shareholders in a target firm the right to buy shares in the merged firm at a bargain price, contingent on another firm acquiring control. 29.11 Some Evidence on Acquisitions:The Long Run : 29-11 29.11 Some Evidence on Acquisitions:The Long Run In the long run, the shareholders of acquiring firms experience below average returns. Cash-financed mergers are different than stock-financed mergers. Acquirers can be friendly or hostile. The shares of hostile cash acquirers outperformed those of friendly cash acquirers. One explanation is that unfriendly cash bidders are more likely to replace poor management. Slide 13: 29-12 Questions to Ponder Form of the Acquisition (may not be clear cut) Tax issues for the shareholders Sources of Synergies Potential for value creation going forward You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.
mergers irfan101 Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 1048 Category: Education License: All Rights Reserved Like it (0) Dislike it (0) Added: October 27, 2009 This Presentation is Public Favorites: 1 Presentation Description pppt Comments Posting comment... By: Panda.n (21 month(s) ago) good ppt Saving..... Post Reply Close Saving..... Edit Comment Close By: narendra1 (25 month(s) ago) thanks to the maker of the presentation and website that it helps viewers to get knowledge about various topics. kindly forward this presentation to my email id nschauhan1@yahoo.co.in Saving..... Post Reply Close Saving..... Edit Comment Close By: taleinwinter (29 month(s) ago) ppp Saving..... Post Reply Close Saving..... Edit Comment Close Premium member Presentation Transcript Slide 1: 29-0 CHAPTER 29 Mergers andAcquisitions 29.1 The Basic Formsof Acquisitions : 29-1 29.1 The Basic Formsof Acquisitions There are three basic legal procedures that one firm can use to acquire another firm: Merger or Consolidation Acquisition of Stock Acquisition of Assets Varieties of Takeovers : 29-2 Varieties of Takeovers Takeovers 29.2 The Tax Forms of Acquisitions : 29-3 29.2 The Tax Forms of Acquisitions If it is a taxable acquisition, selling shareholders need to figure their cost basis and pay taxes on any capital gains. If it is not a taxable event, shareholders are deemed to have exchanged their old shares for new ones of equivalent value. 29.3 Accounting for Acquisitions : 29-4 29.3 Accounting for Acquisitions The Purchase Method The source of much “goodwill” Pooling of Interests Pooling of interest is generally used when the acquiring firm issues voting stock in exchange for at least 90 percent of the outstanding voting stock of the acquired firm. Purchase accounting is generally used under other financing arrangements. 29.4 Determining the Synergyfrom an Acquisition : 29-5 29.4 Determining the Synergyfrom an Acquisition Most acquisitions fail to create value for the acquirer. The main reason why they do not lies in failures to integrate two companies after a merger. Intellectual capital often walks out the door when acquisitions aren't handled carefully. Traditionally, acquisitions deliver value when they allow for scale economies or market power, better products and services in the market, or learning from the new firms. 29.5 Source of Synergyfrom Acquisitions : 29-6 29.5 Source of Synergyfrom Acquisitions Revenue Enhancement Cost Reduction Including replacement of ineffective managers. Tax Gains Net Operating Losses Unused Debt Capacity Incremental new investment required in working capital and fixed assets DCFt = DRevt – DCostst – DTaxest – DCapital Requirementst 29.6 Calculating the Value of the Firm after an Acquisition : 29-7 29.6 Calculating the Value of the Firm after an Acquisition Qualitative issues Avoiding Mistakes Do not Ignore Market Values Estimate only Incremental Cash Flows Use the Correct Discount Rate Don’t Forget Transactions Costs 29.8 Two "Bad" Reasonsfor Mergers : 29-8 29.8 Two "Bad" Reasonsfor Mergers Earnings Growth Only an accounting illusion. Diversification Shareholders who wish to diversify can accomplish this at much lower cost with one phone call to their broker than can management with a takeover. Going Private and LBOs : 29-9 Going Private and LBOs If the existing management buys the firm from the shareholders and takes it private. If it is financed with a lot of debt, it is a leveraged buyout (LBO). The extra debt provides a tax deduction for the new owners, while at the same time turning the pervious managers into owners. This reduces the agency costs of equity Other Devices and the Jargonof Corporate Takeovers : 29-10 Other Devices and the Jargonof Corporate Takeovers Golden parachutes are compensation to outgoing target firm management. Crown jewels are the major assets of the target. If the target firm management is desperate enough, they will sell off the crown jewels. Poison pills are measures of true desperation to make the firm unattractive to bidders. They reduce shareholder wealth. One example of a poison pill is giving the shareholders in a target firm the right to buy shares in the merged firm at a bargain price, contingent on another firm acquiring control. 29.11 Some Evidence on Acquisitions:The Long Run : 29-11 29.11 Some Evidence on Acquisitions:The Long Run In the long run, the shareholders of acquiring firms experience below average returns. Cash-financed mergers are different than stock-financed mergers. Acquirers can be friendly or hostile. The shares of hostile cash acquirers outperformed those of friendly cash acquirers. One explanation is that unfriendly cash bidders are more likely to replace poor management. Slide 13: 29-12 Questions to Ponder Form of the Acquisition (may not be clear cut) Tax issues for the shareholders Sources of Synergies Potential for value creation going forward