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31 Cards in this Set
- Front
- Back
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Merger
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A type of acquisition in which two or more business entities are combined into one.
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Acquisition
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The purchase of one companys stock by another company.
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Consolidation
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A combination of two or more business entities into a new entity.
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Takeover
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A change in the control of a company through merger, acquisition or some other type of transaction.
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Proxy contest
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A strategy for gaining control of a company by obtaining the voting rights of the targets shareholders.
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Tender offer
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A purchase offer made directly to the shareholders of the targer, typically at an offer price greater than the current market price.
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Divestiture
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The disposal or sale of part of a company.
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Spin-off
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The creation of a new company from part of an existing company.
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Horizontal acquisition
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A combination of two companies in the same line of business.
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Vertical acquisition
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A combination of two companies involved in related lines of business but at different stages of production.
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Conglormerate acquisition
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A combination of two companies involved in unrelated lines of business.
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Reasons for acquisitions
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-Cost savings
-Synergies -Competitive advantage |
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Revenue efficiency
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In the context of acquisitions, a measure of the extent of which a companys revenues can be increased by combining the company with another entity or entities.
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Cost efficiency
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In the context of acquisitions, a measure of the extent to which a companys cost can be reduced by combining the company with another entity or entities.
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NOL
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Net operating loss
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Synergy
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Some mutual advantage is achieved when two companies are combined.
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Economic gain
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G = Vab - (Va + Vb)
Vab = Value of two companies combined. Va = Value of company A alone Vb = Value of company B alone An acquisition only makes sense when G is greater than zero. |
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Mechanics of acquisitions
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-Due dilligence
-Tax aspects -Financial aspects |
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Due diligence
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The process of examining a companys operations, finances, and management and verifying material facts that affect company value.
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Loan covenant
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A condition that must be met to keep the loan in compliance.
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Takeover defenses for mergers and acquisitions
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-Targeted repurchase
-White knights -Shark repellants |
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Hostile takeover
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An individual or company that is attempting to acquire a controlling interest in the target in order to launch a hostile takeover or replace existing management.
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White knight
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Finding a friendly buyer
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Shark repellants
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-Golden parachute
-Super majority -Staggered board -Poison pills -Poison puts -Crown jewel -Lockup |
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Golden parachute
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Provision in an executives employment contract that specifies they will receive a large payoff, immediate vesting of stock options and enhanced retirement benefits if their contract is terminated after the company is acquired.
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Super majority
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A company can amend its bylaws to require that a super majority approve any acquisition attempt.
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Staggered board
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A company can require that a minority freaction, such as 1/3, of the board members is elected each year.
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Poison pills
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A clause that gives existing shareholders the right to purchase additional share at a substantial discount.
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Poison puts
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Gives bondholders the right to demand debt repayment, possibly at a premium.
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Crown jewel
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A target might sell or threaten to sell some key assets to avert a takeover.
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Lockup
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A friendly buyer is given the option to purchase certain key assets or stock of the target in the event of a hostile takeover attempt.
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