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9. Mergers And Takeovers Notes

Finance Notes > Corporate Finance Notes

This is an extract of our 9. Mergers And Takeovers document, which we sell as part of our Corporate Finance Notes collection written by the top tier of University Of London (examined By LSE) students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Corporate Finance Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Mergers and Takeovers
Motivation, Methods, Defense Strategies
Necessary Conditions for Mergers
Total Value of the Merger > Value of Firm Y + Value of Firm X
VYX > VY + VX
Y = Raider
X = Target Firm
Merger Motivations (Grinblatt and Titman, 2002)
Financial Merger

Y takeovers X

Poor management of X  Corporate inefficiencies

Undervaluation of X

Y takes advantage of inefficiencies

Y offers strategies to increase VX

Y aims to resell X

Strategic Merger
 Y is attracted by synergy gains if merged with X
 Horizontal merger (market share, market power)
 Vertical merger (production cost, marketing expense)
 Y takes advantage of economies of scale (production, average cost)
 Y take advantage of economies of scope (marketing, distribution cost)
Conglomerate Merger
 Not motivated by scale economies and corporate inefficiencies
 Diversification to reduce risk
 Lower Interest Rates as Cash-flow risk
 Sufficient cash for +NPV project
 Sometimes without clear reason

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