DOCSLIB.ORG

Mergers & Acquisitions Divestitures Valuation Concept

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text

Load more

Giddy/SIM M&A-1 SIM/NYU The Job of the CFO Mergers & Acquisitions (and Divestitures) Prof. Ian Giddy New York University Mergers and Acquisitions l Mergers & Acquisitions l Divestitures l Valuation Concept: Is a division or firm worth more within the company, or outside it? Copyright ©2000 Ian H. Giddy M&A 2 Giddy/SIM M&A-2 The Market for Corporate Control When you buy shares, you get dividends; and potential control rights There is a market for corporate control— that is, control over the extent to which a business is run in the right way by the right people. This market is constrained by uGovernment Example: Allied Signal’s attempts uManagement to acquire AMP, which is uSome shareholders located in Pennsylvania Copyright ©2000 Ian H. Giddy M&A 3 The Market for Corporate Control l M&A&D situations often arise from conflicts: l Owner vs manager ("agency problems" l Build vs buy ("internalization") l Agency problems arise when owners' interests and managers' interests diverge. Resolving agency problems requires u Monitoring & intervention, or u Setting incentives, or u Constraining, as in bond covenants l Resolving principal-agent conflicts is costly l Hence market price may differ from potential value of a corporation Copyright ©2000 Ian H. Giddy M&A 4 Giddy/SIM M&A-3 “Internalization”: Is an activity best done within the company, or outside it? Issue: why are certain economic activities conducted within firms rather than between firms? l As a rule, it is more costly to build than to buy—markets make better decisions than bureaucrats l Hence there must be some good reason, some synergy, that makes an activity better if done within a firm l Eg: the production of proprietary information l Often, these synergies are illusory Copyright ©2000 Ian H. Giddy M&A 5 Takeovers as a Solution to “Agency Problems” l There is a conflict of interest between shareholders and managers of a target company—Eg poison pill defenses l Individual owners do not have suffcient incentive to monitor managers l Corporate takeover specialists, Eg KKR, monitor the firm's environment and keep themselves aware of the potential value of the firm under efficient management l The threat of a takeover helps to keep managers on their toes—often precipitates restructuring. Copyright ©2000 Ian H. Giddy M&A 6 Giddy/SIM M&A-4 Goal of Acquisitions and Mergers lIncrease size - easy! lIncrease market value - much harder! Copyright ©2000 Ian H. Giddy M&A 7 Goal: Market Value Addition Definition It is a measure of shareholder value creation Methodology It is the change in the market value of invested capital ( debt and equity) minus the change in the book value of invested capital Copyright ©2000 Ian H. Giddy M&A 8 Giddy/SIM M&A-5 Value Changes In An Acquisition 10 Taxes on sale of assets Profit on sale 40 of assets 30 Takeover premium 50 Gain in Synergies and/ or operating 50 shareholder improvements value 75 Value of acquired company as a separate entity 250 Value of acquiring company 175 without acquisition Initial value Final value of plus gains combined company Copyright ©2000 Ian H. Giddy M&A 9 Goals of Acquisitions Rationale: Firm A should merge with Firm B if [Value of AB > Value of A + Value of B + Cost of transaction] l Synergy l Gain market power l Discipline l Taxes l Financing Copyright ©2000 Ian H. Giddy M&A 10 Giddy/SIM M&A-6 Goals of Acquisitions Rationale: Firm A should merge with Firm B if [Value of AB > Value of A + Value of B + Cost of transaction] l Synergy u Eg Martell takeover by Seagrams to match name and inventory with marketing capabilities l Gain market power u Eg Atlas merger with Varity. (Less important with open borders) l Discipline u Eg Telmex takeover by France Telecom & Southwestern Bell (Privatization) u Eg RJR/Nabisco takeover by KKR (Hostile LBO) l Taxes u Eg income smoothing, use accumulated tax losses, amortize goodwill l Financing u Eg Korean groups acquire firms to give them better access to within-group financing than they might get in Korea's undeveloped capital market Copyright ©2000 Ian H. Giddy M&A 11 Fallacies of Acquisitions l Size (shareholders would rather have their money back, eg Credit Lyonnais) l Downstream/upstream integration (internal transfer at nonmarket prices, eg Dow/Conoco, Aramco/Texaco) l Diversification into unrelated industries (Kodak/Sterling Drug) Copyright ©2000 Ian H. Giddy M&A 12 Giddy/SIM M&A-7 Methods of Acquiring Corporate Control l Mergers u Bidder typically negotiates a friendly agreement with target management and submits this for approval to both sets of shareholders u Usually entails an exchange of securities l Tender Offers u Often hostile, often opposed, often generates competing bids u Usually a direct cash offer to stockholders of an above-market price l Proxy Fights u A method of gaining control without acquisition: dissident shareholders seek to change management by soliciting proxies from other shareholders. Copyright ©2000 Ian H. Giddy M&A 13 Who Gains What? l Target firm shareholders? l Bidding firm shareholders? l Lawyers and bankers? l Are there overall gains? Changes in corporate control increase the combined market value of assets of the bidding and target firms. The average is a 10.5% increase in total value. Copyright ©2000 Ian H. Giddy M&A 14 Giddy/SIM M&A-8 The Price: Who Gets What? Daimler Chrysler Combined Market value before deal $52.8 $29.4 $82.2 leaked Value added by merger $18.0 Merged Value $100.2 Shareholders get 57.2% 42.8% 100% Which is now worth $57.3 $42.9 $100.2 Shareholders' shares of $4.5 $13.5 $18 the gain Premium, as % 9% 46% Copyright ©2000 Ian H. Giddy M&A 15 A Case Study: Kodak - Sterling Drugs l Eastman Kodak’s Great Victory Copyright ©2000 Ian H. Giddy M&A 16 Giddy/SIM M&A-9 Earnings and Revenues at Sterling Drugs Sterling Drug under Eastman Kodak: Where is the synergy? 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 1988 1989 1990 1991 1992 Revenue Operating Earnings Copyright ©2000 Ian H. Giddy M&A 17 Kodak Says Drug Unit Is Not for Sale (NYTimes, 8/93) l Eastman Kodak officials say they have no plans to sell Kodak’s Sterling Winthrop drug unit. l Louis Mattis, Chairman of Sterling Winthrop, dismissed the rumors as “massive speculation, which flies in the face of the stated intent of Kodak that it is committed to be in the health business.” Copyright ©2000 Ian H. Giddy M&A 18 Giddy/SIM M&A-10 Sanofi to Get Part of Kodak Drug Unit (6/94) l Taking a long stride on its way out of the drug business, Eastman Kodak said yesterday that the Sanofi Group, a French pharmaceutical company, had agreed to buy the prescription drug business of Sterling Winthrop, a Kodak subsidiary, for $1.68 billion. u Shares of Eastman Kodak rose 75 cents yesterday, closing at $47.50 on the New York Stock Exchange. u Samuel D. Isaly an analyst , said the announcement was “very good for Sanofi and very good for Kodak.” u “When the divestitures are complete, Kodak will be entirely focused on imaging,” said George M. C. Fisher, the company's chairman and chief executive. Copyright ©2000 Ian H. Giddy M&A 19 Smithkline to Buy Kodak’s Drug Business for $2.9 Billion l Smithkline Beecham agreed to buy Eastman Kodak’s Sterling Winthrop Inc. for $2.9 billion. l For Kodak, the sale almost completes a restructuring intended to refocus the company on its photography business. l Kodak’s stock price rose $1.25 to $50.625, the highest price since December. Copyright ©2000 Ian H. Giddy M&A 20 Giddy/SIM M&A-11 Reasons Why Many Acquisitions Fail To Generate Value Overestimating synergies Over Poor optimistic Value post-merger market Destruction assessments integration Deal price not based on cash flow value Copyright ©2000 Ian H. Giddy M&A 24 Using Industry Structure Analysis SUBSTITUTES Questions: l Do substitutes exist? l What is their price/ performance? Potential Action: l Fund venture capital and joint venture to obtain key skills l Acquire position in new segment SUPPLIERS CUSTOMERS Questions: Questions: l Is supplier industry l Is the customer base concentrating? concentrating? l Is supplier value/cost l Is value added to added to end product high, COMPETITIVE customer end product changing? high,changing? ADVANTAGE Potential Actions: Potential Actions: l Backward - integrate l Create differentiated product l Forward - integrate BARRIERS TO ENTRY Questions: l Do barriers to entry exist? l How large are the barriers? l Are they sustainable? Potential Actions: l Acquire to achieve scale in final product or critical component l Lock up supply of critical industry input Copyright ©2000 Ian H. Giddy M&A 27 Giddy/SIM M&A-12 Goals of Acquisitions Rationale: Firm A should merge with Firm B if [Value of AB > Value of A + Value of B + Cost of transaction] l Synergy l Gain market power l Discipline Example: l Taxes Ciba-Geigy/ l Financing Sandoz Copyright ©2000 Ian H. Giddy M&A 28 Most Value is Created on the Asset Side (Operational Restructuring) l Discounted Cash Flow (DCF) analysis for project evaluation l Value-Based Management for performance evaluation Wärtsilä NSD (from Wärtsilä Diesel & New Sulzer Diesel ? Copyright ©2000 Ian H. Giddy M&A 29 Giddy/SIM M&A-13 Wärtsilä NSD: Consolidating Production and Distribution Wärtsilä NSD now has the world’s most extensive portfolio of heavy duty engines.
Recommended publications
  • Cash Management and Fiduciary Banking Services

    Cash Management and Fiduciary Banking Services

    The Winterbotham Merchant Bank a division of The Winterbotham Trust Company Limited CASH MANAGEMENT AND FIDUCIARY BANKING SERVICES Table of Contents Winterbotham Group 4 Regulated Subsidiaries 5 Cash Management and Fiduciary Banking Services 6 Critical Advantages 7 What is Fiduciary Banking? 8 Additional Cash Management Services 9 The Winterbotham Merchant Bank 9 Winterbotham International Securities 10 WINTERBOTHAM GROUP Since our founding in 1990 The Winterbotham Group has focused on the provision of high quality financial services to a global clientele, utilizing the most modern technology, delivered personally. At Winterbotham we seek to add value and our suite of services and the location of their delivery has expanded as the needs of our clients have grown. Today Winterbotham operates in six international financial centers from which we offer services which are individually customized and delivered with an attention to detail now often lost as the transfer of service ‘online’ encourages financial decisions to be self-directed. During our almost three decades of growth Winterbotham’s ownership remains vested in the hands of its founder and his family and this continuity is mirrored in our vision which has not changed: YOUR OBJECTIVES = OUR OBJECTIVES ENABLING YOUR BUSINESS TO THRIVE The Winterbotham Trust Company Limited is a Bank and Trust Company, Broker/Dealer and Investment Fund Administrator, with Head Offices in Nassau, The Bahamas. Winterbotham operates a subsidiary Bank, WTC International Bank Corporation, in San Juan, Puerto Rico and non-banking regional offices/subsidiaries in the Cayman Islands, Chennai, Montevideo and Hong Kong. The group has developed a niche offering in the provision of back office, structuring, administration, corporate governance, IT and accounting services for entrepreneurs and their companies, wealthy individuals and families, their family offices, and for financial institutions.
  • Are Accruals During Initial Public Offerings Opportunistic?

    Are Accruals During Initial Public Offerings Opportunistic?

    Review of Accounting Studies, 3, 175–208 (1998) c 1998 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands. Are Accruals during Initial Public Offerings Opportunistic? SIEW HONG TEOH [email protected] University of Michigan Business School, Ann Arbor, MI 48109-1234 T. J. WONG Hong Kong University of Science and Technology GITA R. RAO Colonial Management Associates Abstract. We find evidence that initial public offering (IPO) firms, on average, have high positive issue-year earnings and abnormal accruals, followed by poor long-run earnings and negative abnormal accruals. The IPO- year abnormal, and not expected, accruals explain the cross-sectional variation in post-issue earnings and stock returns. The results are robust with respect to alternative abnormal accruals and earnings performance measures. IPO firms adopt more income-increasing depreciation policies when they deviate from similar prior performance same industry non-issuers, and they provide significantly less for uncollectible accounts receivable than their matched non-issuers. The results taken together suggest opportunistic earnings management partially explains the new issues anomaly. Accrual accounting provides managers with discretion in the reporting of earnings. This allows financial reports to reflect managerial information about underlying economic con- ditions more accurately than is possible with a strictly mechanical reporting rule. However, if in some circumstances managers wish to mislead investors, discretion provides greater scope for obscuring true underlying firm performance. The incentives to manage earnings may be especially strong when the firm is planning to sell shares to the market, as in an initial public offering (IPO). IPOs are a major corporate event as evidenced by the size of the IPO market.
  • Adopting a Poison Pill in Response to Shareholder Activism

    Adopting a Poison Pill in Response to Shareholder Activism

    IN THE BOARDROOM CAPITAL MARKETS & CORPORATE GOVERNANCE Ismagilov/Shutterstock.com Adopting a Poison Pill in Response to Shareholder Activism In his regular column, Frank Aquila drafts a memo to a board explaining the considerations it should evaluate when deciding whether to adopt a poison pill. FRANCIS J. AQUILA PARTNER SULLIVAN & CROMWELL LLP Frank has a broad multidisciplinary practice that includes extensive experience in negotiated and unsolicited mergers and acquisitions, activist and takeover defense, complex cross-border transactions, global joint ventures, and private equity transactions. He regularly counsels boards of directors and board committees on corporate governance matters and crisis management. MEMORANDUM TO: The Board of Directors FROM: Frank Aquila RE: Considerations When Adopting a Poison Pill in Response to Shareholder Activism As we have discussed, the Investor has just filed a Schedule 13D with the Securities and Exchange Commission disclosing equity holdings in the Company equal to 8.8% of the Company’s common stock. The Investor has also disclosed its intentions to increase its stake to approximately 15%, seek representation on the Company’s Board, and then advocate for either a spin-off of certain business units or a sale of the Company. 22 April 2016 | Practical Law © 2016 Thomson Reuters. All rights reserved. To strengthen the Board’s negotiating leverage and provide adequate time to evaluate what alternatives would be in the best interests of the Company and its shareholders, the Board is considering adopting a shareholder rights plan, commonly known as a poison pill, with a 10% threshold. Correctly implemented, the triggering of this poison pill would massively dilute the Investor’s voting and equity stake as soon as the Investor acquires 10% of the Company’s outstanding common stock by allowing all other shareholders to purchase additional shares at a steep discount.
  • 1 IRREVOCABLE SUBSCRIPTION UNDERTAKING TO: Tryg A/S

    1 IRREVOCABLE SUBSCRIPTION UNDERTAKING TO: Tryg A/S

    EXECUTION VERSION IRREVOCABLE SUBSCRIPTION UNDERTAKING TO: Tryg A/S Klausdalsbrovej 601 2670 Ballerup Denmark ("Tryg") and Morgan Stanley & Co. International plc 25 Cabot Square Canary Wharf London E14 4QA United Kingdom ("Morgan Stanley") and Danske Bank A/S Holmens Kanal 2 - 12 DK-1092 Copenhagen Denmark ("Danske Bank" and together with Morgan Stanley, the "Underwriters") FROM: TryghedsGruppen SMBA Hummeltoftevej 49 2830 Virum Denmark (the "Foundation", "us", "we") Date: 18 November 2020 1 RECOMMENDED CASH OFFER TO ACQUIRE RSA INSURANCE GROUP PLC AND RIGHTS ISSUE IN TRYG A/S 1.1 We understand that Tryg together with Regent Bidco Limited (“Bidco”) and Intact Financial Corporation ("Intact") contemplate an acquisition by Bidco of the entire issued and to be issued share capital of RSA Insurance Group plc ("RSA") (the "Acquisition") by way of court-sanctioned scheme of arrangement under Part 26 of the UK Companies Act 2006 (including any new, increased, renewed or revised scheme of arrangement) (the ''Scheme''). In connection with the Acquisition, 1 Intact and Tryg have entered into a Separation Agreement with respect to the Scandinavia Sepa- ration, on the terms and conditions as summarised in the draft announcement attached to this irrevocable undertaking as Appendix 1.1 (the ''Rule 2.7 Announcement''), together with such additional terms and conditions as may be required by the Applicable Requirements (as defined in Clause 1.3 below) or as may be agreed in writing between Tryg, Intact, Bidco and RSA provided that such additional terms shall not increase Foundation's payment obligations under this irrevoca- ble undertaking or change the consideration contributed by Tryg to the Acquisition as indicated in the Rule 2.7 Announcement without the Foundation's prior consent.
  • Discussion of Theoretical-Practical Aspects of Squeeze Out

    Discussion of Theoretical-Practical Aspects of Squeeze Out

    Littera Scripta, 2019, Volume 12, Issue 1 Discussion of theoretical-practical aspects of squeeze out Iveta Sedlakova, Katarina Kramarova, Ladislav Vagner University of Zilina, The Faculty of Operation and Economics of Transport and Communications, Univerzitna 1, Zilina 010 01, Slovak Republic Abstract The presented article has mainly a nature of theoretical discussion on the issue of squeeze out. The squeeze out entitles a majority shareholder to exercise his rights to buy out remaining shares of an offeree company. It a specific transaction mechanism with an impact on shareholders, offeree company, procedural regulation of the transfer of ownership rights arising from shares, methodological aspects of determining a squeeze out price of shares of minority shareholders, efficiency of capital markets etc. In case of Slovakia, the squeeze out has been used for more than one decade, however the number of such kind transactions is low. The main objective of the article is to point on specifics of that transaction and methodological aspects of determination of a general value of shares as a criterion of a fair price relying on basic attributes of procedural regulation of squeeze out in Slovakia, synthesis of knowledge from empirical studies, existing legal and financial theory as well practical experience one of the authors. Keywords: consideration, fair price, general value, share, squeeze out Introduction Determining the value of a company (business valuation), parts of a company, its assets or other property is not a new instrument from the view of the Slovak (or Czechoslovak) economy. Its existence was already evident at a time when our economy had the feature of central planned economy.
  • Cash Or Credit?

    Cash Or Credit?

    LESSON 15 Cash or Credit? LESSON DESCRIPTION • Compare the advantages and disadvantages AND BACKGROUND of using credit. Most students are aware of the variety of pay - • Explain how interest is calculated. ment options available to consumers. Cash, • Analyze the opportunity cost of using credit checks, debit cards, and credit cards are often and various forms of cash payments. used by their parents; however, the students • Evaluate the costs and benefits of various probably do not understand the implications of credit card agreements. each. This lesson examines the advantages and disadvantages of various payment methods and focuses especially on using credit. The students TIME REQUIRED are challenged to calculate the cost of credit, Two or three 45-minute class periods compare credit card agreements, and analyze case studies to determine whether credit is being used wisely. MATERIALS Lesson 15 is correlated with national standards • A transparency of Visual 15.1 , 15.2 , and 15.3 for mathematics and economics, and with per - • A copy for each student of Introduction to sonal finance guidelines, as shown in Tables 1-3 Theme 5 and Introduction and Vocabulary in the introductory section of this publication. sections of Lesson 15 from the Student Workbook ECONOMIC AND PERSONAL FINANCE • A copy for each student of Exercise 15.1 , CONCEPTS 15.2 , and 15.3 from the Student Workbook • Annual fee • APR • A copy for each student of Lesson 15 Assessment from the Student Workbook • Credit limit • Finance charge • Credit card application forms—one for each student. Collect these ahead of time, or have • Grace period students bring in those their parents receive.
  • Real Options Valuation As a Way to More Accurately Estimate the Required Inputs to DCF

    Real Options Valuation As a Way to More Accurately Estimate the Required Inputs to DCF

    Northwestern University Kellogg Graduate School of Management Finance 924-A Professor Petersen Real Options Spring 2001 Valuation is at the foundation of almost all finance courses and the intellectual foundation of most valuation methods which we will examine is discounted cashflow. In Finance I you used DCF to value securities and in Finance II you used DCF to value projects. The valuation approach in Futures and Options appeared to be different, but was conceptually very similar. This course is meant to expand your knowledge of valuation – both the intuition of how it should be done as well as the practice of how it is done. Understanding when the two are the same and when they are not can be very valuable. Prerequisites: The prerequisite for this course is Finance II (441)/Turbo (440) and Futures and Options (465). Given the structure of the course, no auditors will be allowed. Course Readings: Course Packet for Finance 924 - Petersen Warning: This is a relatively new course. Thus you should expect that the content and organization of the course will be fluid and may change in real time. I reserve the right to add and alter the course materials during the term. I understand that this makes organization challenging. You need to keep on top of where we are and what requirements are coming. If you are ever unsure, ASK. I will keep you informed of the schedule via the course web page. You should check it each week to see what we will cover the next week and what assignments are due.
  • Uva-F-1274 Methods of Valuation for Mergers And

    Uva-F-1274 Methods of Valuation for Mergers And

    Graduate School of Business Administration UVA-F-1274 University of Virginia METHODS OF VALUATION FOR MERGERS AND ACQUISITIONS This note addresses the methods used to value companies in a merger and acquisitions (M&A) setting. It provides a detailed description of the discounted cash flow (DCF) approach and reviews other methods of valuation, such as book value, liquidation value, replacement cost, market value, trading multiples of peer firms, and comparable transaction multiples. Discounted Cash Flow Method Overview The discounted cash flow approach in an M&A setting attempts to determine the value of the company (or ‘enterprise’) by computing the present value of cash flows over the life of the company.1 Since a corporation is assumed to have infinite life, the analysis is broken into two parts: a forecast period and a terminal value. In the forecast period, explicit forecasts of free cash flow must be developed that incorporate the economic benefits and costs of the transaction. Ideally, the forecast period should equate with the interval in which the firm enjoys a competitive advantage (i.e., the circumstances where expected returns exceed required returns.) For most circumstances a forecast period of five or ten years is used. The value of the company derived from free cash flows arising after the forecast period is captured by a terminal value. Terminal value is estimated in the last year of the forecast period and capitalizes the present value of all future cash flows beyond the forecast period. The terminal region cash flows are projected under a steady state assumption that the firm enjoys no opportunities for abnormal growth or that expected returns equal required returns in this interval.
  • How to Calculate Goodwill – and Why It Exists

    How to Calculate Goodwill – and Why It Exists

    How to Calculate Goodwill – and Why It Exists Would You Like a Write-Up with Your Plug? This Video: We Haven’t Covered This Before?!! I was looking at this channel the other day and realized that we had videos on Negative Goodwill and Purchase Price Allocation for Noncontrolling Interests… But nothing on a far more basic topic: how to calculate Goodwill in the first place! This Video: We Haven’t Covered This Before?!! Also, we get a surprising number of questions about this topic, even though there’s detailed coverage of it in our guides and courses… and lots of articles online! So, here goes, starting with why Goodwill exists and a simple example: Why Goodwill Exists • SHORT ANSWER: Goodwill is an accounting construct that exists because in M&A deals, Buyers almost always pay more than what Sellers’ Balance Sheets are worth (i.e., Assets – Liabilities) • The Buyer “gets” all the Seller’s Assets and Liabilities, so that makes its Balance Sheet go out of balance when a deal closes • We create Goodwill to fix this imbalance and ensure that Assets = Liabilities + Equity on the Combined Balance Sheet • Basic Calculation: Goodwill = Equity Purchase Price – Seller’s Common Shareholders’ Equity + Seller’s Existing Goodwill +/- Other Adjustments to Seller’s Balance Sheet Why Goodwill Exists – Simple Example • EX: Buyer pays $1000 in Cash for the Seller, and the Seller has $1500 in Assets, $600 in Liabilities, and Common Equity of $900 • Next: Seller’s Common Equity is written down in the deal, and the Buyer’s Assets go down by $1000, then up
  • Economic Value Added (EVA™)

    Economic Value Added (EVA™)

    UBS Global Research Valuation Series Economic Value Added (EVA™) EVA™: Use and abuse EVA™ is increasingly used for corporate and management appraisal and evaluation. The approach has gained so much popularity that it is now influencing the style, content and focus of sell-side research. While EVA™ can provide some useful insights into companies, as can many other techniques, it has shortcomings that should not be overlooked. ÆEVA™is based on a very simple concept; if a company earns a return that is greater than expected, then value has been added. In each year, the EVA™ is the difference between the actual and expected return (return spread) multiplied by the invested capital. The return spread and EVA™ are used as performance indicators. In addition, the total value added is the sum of all future annual EVA™s (in present value terms) and if this is added to the invested capital, it gives the total value of the company. ÆIn practice, the returns earned and the invested capital are based on accounting data where as the return demanded by investors is based on market (or economic) data. Consequently, EVA™ measures the difference between accounting and economic data and can, therefore, be influenced by different accounting practices and by management ‘adjustments’ to accounting information. Management may be incentivised to do this given that reward structures may be linked to EVA™. In an attempt to address these problems, a multitude of adjustments need to be made to the accounting data but these are often judgmental and restricted by the level of accounting disclosure.
  • Do Stock Mergers Create Value for Acquirers?

    Do Stock Mergers Create Value for Acquirers?

    University of Pennsylvania ScholarlyCommons Finance Papers Wharton Faculty Research 2009 Do Stock Mergers Create Value for Acquirers? Pavel Savor University of Pennsylvania Qi Lu Follow this and additional works at: https://repository.upenn.edu/fnce_papers Part of the Finance Commons, and the Finance and Financial Management Commons Recommended Citation Savor, P., & Lu, Q. (2009). Do Stock Mergers Create Value for Acquirers?. The Journal of Finance, 64 (3), 1061-1097. http://dx.doi.org/10.1111/j.1540-6261.2009.01459.x This paper is posted at ScholarlyCommons. https://repository.upenn.edu/fnce_papers/304 For more information, please contact [email protected]. Do Stock Mergers Create Value for Acquirers? Abstract This paper finds support for the hypothesis that overvalued firms create value for long-term shareholders by using their equity as currency. Any approach centered on abnormal returns is complicated by the fact that the most overvalued firms have the greatest incentive to engage in stock acquisitions. We solve this endogeneity problem by creating a sample of mergers that fail for exogenous reasons. We find that unsuccessful stock bidders significantly underperform successful ones. Failure to consummate is costlier for richly priced firms, and the unrealized acquirer-target combination would have earned higher returns. None of these results hold for cash bids. Disciplines Finance | Finance and Financial Management This journal article is available at ScholarlyCommons: https://repository.upenn.edu/fnce_papers/304 Do Stock Mergers Create Value for Acquirers? PAVEL G. SAVOR and QI LU* ABSTRACT This paper …nds support for the hypothesis that overvalued …rms create value for long-term share- holders by using their equity as currency.
  • The SEC and the Failure of Federal, Takeover Regulation

    The SEC and the Failure of Federal, Takeover Regulation

    Florida State University Law Review Volume 34 Issue 2 Article 2 2007 The SEC and the Failure of Federal, Takeover Regulation Steven M. Davidoff [email protected] Follow this and additional works at: https://ir.law.fsu.edu/lr Part of the Law Commons Recommended Citation Steven M. Davidoff, The SEC and the Failure of Federal, Takeover Regulation, 34 Fla. St. U. L. Rev. (2007) . https://ir.law.fsu.edu/lr/vol34/iss2/2 This Article is brought to you for free and open access by Scholarship Repository. It has been accepted for inclusion in Florida State University Law Review by an authorized editor of Scholarship Repository. For more information, please contact [email protected]. FLORIDA STATE UNIVERSITY LAW REVIEW THE SEC AND THE FAILURE OF FEDERAL TAKEOVER REGULATION Steven M. Davidoff VOLUME 34 WINTER 2007 NUMBER 2 Recommended citation: Steven M. Davidoff, The SEC and the Failure of Federal Takeover Regulation, 34 FLA. ST. U. L. REV. 211 (2007). THE SEC AND THE FAILURE OF FEDERAL TAKEOVER REGULATION STEVEN M. DAVIDOFF* I. INTRODUCTION.................................................................................................. 211 II. THE GOLDEN AGE OF FEDERAL TAKEOVER REGULATION.................................. 215 A. The Williams Act (the 1960s) ..................................................................... 215 B. Going-Privates (the 1970s)......................................................................... 219 C. Hostile Takeovers (the 1980s)..................................................................... 224 1. SEC Legislative