Mergers and Acquisitions

Mergers and takeovers are forms of external growth within a business. External growth occurs when one firm decides to expand by joining together with another. A takeover specifically refers to the gaining control of a firm by acquiring a controlling interest in its shares (51%). Merger, on the other hand, means the joining with another firm to form a new combined enterprise, shares in each firm are exchanged for shares in the other.

• Transaction structures—the takeover could involve a cash offer, a share offer, an asset swap or a combination of these methods. Need to consider legal, taxation and accounting issues.

of the acquiring corporation . . . , and the acquiring corporation must be in control of the other corporation immediately after the

Part 1:What is a hostile takeover and what generally happens to the stock price of the firm being acquired in a hostile takeover?

Target firm continues to exist, as long as there are dissident stockholders holding out. Successful tender offers ultimately become mergers. No shareholder approval is needed.

In 2011, we recorded $46 million ($28 million after-tax or $0.02 per share) of incremental costs in cost of sales related to fair value adjustments to the acquired Inventory included in WBD’s balance sheet at the acquisition date and hedging contracts included in PBG’s and PAS’s balance sheets at the acquisition date. In 2010, we recorded $398 million ($333 million after-tax or $0.21 per share) of incremental costs related to fair value adjustments to the acquired inventory and other related hedging contracts included in PBG’s and PAS’s balance sheets at the acquisition date. Substantially all of these costs were recorded in cost of sales.

Takeover tactics have been used throughout history. Three important tactics are Bidding strategies, Casual pass, and Bear hugs. Bidding strategy is 2/3 successful to the 1st bidder. Bidders have to watch out for not only the target company, but also for other bidders. There has been a higher successrate on bidders who actually contact the target company first in hopes of a more amiable bid. A second bid can be even more successful, therefore the first bidder shouldn’t offer too much to prepare for a comeback bid. This is called Optimal Bidder. Casual pass is an informal overture before bidding . The problem with this is that it gives the target advance warning of the possible takeover. Bearhugs apply pressure to the target before bidding. The acquirer contact the Board of directors and state that they will go to the stockholders and present an offer to them without the Board’s consent. This forces the target to take a public position and puts pressure on the Board because it must consider the offers or they violate fiduciary duties.

Acquisition in general sense is acquiring the ownership in the property. Briefly speaking, an acquisition is the purchase by one company of a controlling

Since the NPV goes directly to stockholders, the share price of the merged firm will be the market value of the acquiring firm plus the NPV of the acquisition, divided by the number of shares outstanding, so:

It is thought that when firms merge, the price paid by the acquiring firm should be fair value, because that firm is going to invest rationally. Yet, under rational investment, the shareholders of the acquired firm would never sell. For them, the uncertainty of new ownership would reduce the value of the holding. In order to accommodate for cashing out "early", the shareholders of the acquired company must be compensated. The acquiring firm therefore must pay an acquisition premium in order to entice the shareholders of the takeover target. The acquisition premium will depend on the specifics of the deal and the companies involved, where the industry is in the business cycle and whether or not the takeover is hostile (Milano, 2011).

Acquirer proposes to buy the target by exchanging its own stock for the stock of

* The acquirer is the combining entity that obtains control of the other combining entities or businesses.

The Kraft - Cadbury fiasco has made Britain cautious and wary of such hostile takeovers. A hostile takeover is defined as the merger or acquisition carried out against the wishes of the management of the target

The process of acquiring an enterprise anywhere is the world has three elements: 1), identification and valuation of the target; 2), completion of the ownership change transaction (the tender); 3), the management of the post-acquisition transition (Moffett, M. H., Stonehill, A. I., & Eiteman, D. K., 2003).

This is a research assignment regarding the analysis of a friendly takeover example and a hostile takeover example in the year 2010 to 2011. As for the friendly takeover acquisition, it is still in process with a vertical business combination of building materials supper and peat moss distributor. As for the hostile takeover acquisition, this is a Horizontal Business Combination of two mineral mining companies.