University of Applied Sciences Kufstein

Mergers & Acquisitions

Hannes Mungenast

Summer Term 2006

Table of Contents:

1. Introduction ...2

2. Course Summary ...2

3. Are M&As value enhancing? ...6

4. Practical Example: Disney acquires Pixar ...7
4.1. Company Profile Disney ...8
4.2. Company Profile Pixar ...8
4.3. Aims and objectives ...8
4.4. The acquisition sequence ...10
4.5. Wealth Effects ...11
4.6. Any other issue of importance ...13

Bibliography ...15

Appendix

Table: Calculation CAR A

Calculation Dollar Gain B

Chart Disney (6 months) C

Chart Pixar (6 months) C

1. Introduction

This paper is the final paper for the course “Mergers & Acquisitions”. In chapter 2, I will give a summary of the most important aspects of the course. In chapter 3, I will deal with the question, whether M&As are value enhancing. Finally, I will describe a practical example of a M&A, namely Disney’s acquisition of Pixar.

2. Course Summary

The course started with a definition of the terminologies. Generally, M&As refer to traditional mergers and acquisitions, takeovers, corporate restructuring, corporate control and changes in the ownership structure of companies in general. We focused on traditional mergers and acquisitions. It is usually distinguished between mergers and tender offers respectively:

(For technical reasons graphics can not be shown on the preview, but are included on download-file)

Mergers are negotiated deals between the members of the two boards of the compa-nies, while tender offers are direct offers to the shareholders of the target company (the company, which makes the offer is called bidder) and is usually hostile. These offers can either be conditional (bidder requires a minimum amount of shares) or un-conditional and restricted (bidder says a maximum amount of shares he is willing to buy) or unrestricted. It could be a two-tier offer, where the bidder first buys a bit more than 50% of the target company to get control and buys the rest later on. Another possibility is a three-piece suitor, which is similar to a two-tier-offer, however, before buying 50%, the bidder just buys a few shares to get a toehold (this first step was just taken by the Nasdaq in order to the London Stock Exchange and may result in a three-piece suitor).

M&As are generally made because of strategic and financial objectives and are driven by several forces, which usually work together. Technology (e.g. internet), globalization (e.g. WTO, EU) and deregulations (e.g. liberalisation in European postal markets) may be the most important ones. Mergers can be horizontal, vertical or conglomerate. Horizontal mergers occur between companies in the same business activity, in order to reach synergies and economies of scale and scope. As these kinds of mergers could result in a loss of competition, governmental antitrust regula-tions have to be considered. Vertical mergers occur between companies in different stages of production, like for example the acquisition of a supplier. These kinds of mergers happen due to increasing information and transaction efficiency, as informa-tion can flow quicker within a company after a merger and no time for contracting is being wasted any more. Conglomerate mergers are mergers between companies in unrelated types of businesses.

[...]