Mergers and acquisitions are a means of corporate expansion and growth. They are not the only means of corporate growth, but are an alternative to growth by internal or organic capital investment.
Table of Contents
I. Mergers and acquisitions in general
1. INTRODUCTION
2. BASIC DEFINITIONS
3. CHARACTERISTICS OF HOSTILE AND FRIENDLY TAKEOVERS
4. LEVERAGED BUYOUTS AND MANAGEMENT BUYOUTS
4.1. A simplified example of an LBO
5. OBJECTIVES OF MERGERS AND ACQUISITIONS
5.1. Market share and growth
5.2. Synergies (the “2+2=5”-effect)
5.3. Undervaluations
5.4. Tax law motives
6. MERGER TYPES AND CHARACTERISTICS
6.1. Horizontal Mergers
6.2. Vertical Mergers
6.3. Conglomerate Mergers
II. Corporate Raiders and Junk Bonds
1. DEFINITIONS
2. REASONS FOR THE USE OF JUNK BONDS
3. JUNK BONDS AND MERGER ACTIVITY
III. Defences against takeovers
1. INTRODUCTION
2. BID DEFENCE STRATEGIES
2.1. Pre-bid defences
2.2. Post-offer defences and the UK City (Takeover) Code
2.3. Takeover defence outside the UK
IV. The role of anti-trust regulation
1. INTRODUCTION
2. HISTORY
2.1 Antitrust Regulation in the USA
2.2. Antitrust Regulation in the European Union
Objectives and Core Themes
This report examines the dynamics of corporate takeovers, focusing on their economic definitions, the various strategic motives behind them, and the financial mechanisms used to facilitate them. It further investigates the defensive measures target companies deploy against hostile acquisitions and the regulatory frameworks governing market competition in the US and the EU.
- Economic classification and objectives of mergers and acquisitions.
- Mechanisms and financial implications of Leveraged Buyouts (LBOs) and Management Buyouts (MBOs).
- The role of "junk bonds" in financing acquisition activity.
- Defensive strategies employed by management against hostile takeover bids.
- Regulatory constraints and the role of anti-trust legislation in maintaining market competition.
Auszug aus dem Buch
3. Characteristics of Hostile and Friendly Takeovers
Economic analysis has always distinguished between two broad classes of takeovers.
The first is what we call “disciplinary takeovers”, with the purpose to simply correct the non-value-maximizing practices of managers of the target firm. Those practices may include excessive growth and diversification, lavish consumption of perquisites, overpayment to employees and also to suppliers, or debt avoidance to secure a “quiet life”. As disciplinary takeovers are designed to replace or change the policies of managers who do not maximize shareholder value, the actual integration of the businesses of the acquirer and the target firm is not really essential. The realization of the takeover is nothing but the most effective way to change control and with it the target´s operating business strategy.
The second class of takeovers, respectively mergers, can be loosely called “synergistic”, because the main motivating force behind those strategies is the possibility of benefits from combining the businesses of the firms in question. Such synergy gains – some economists are also referring to a so-called “2+2=5”-effect - can come from increases in market power, which always enables a firm to rise its prices relative to its costs, from offsetting the profits of one firm with the tax loss carried forward of the other, from working together in Research and Development tasks, from cheaper possibilities in marketing, production, transportation and so on.
In case of those synergistic takeovers, unlike in disciplinary takeovers, it is of course essential to integrate (combine) the two businesses for realizing the emerging gains. It is important to note that disciplinary takeovers are often hostile whilst synergistic takeovers are often friendly.
Summary of Chapters
I. Mergers and acquisitions in general: This chapter defines the core terminology and distinguishes between the strategic objectives of disciplinary and synergistic takeovers, while exploring the financial structure of LBOs and MBOs.
II. Corporate Raiders and Junk Bonds: This chapter analyzes the role of high-yield debt in fueling 1980s acquisition activity and the rise of corporate raiding as a tool to challenge inefficient management.
III. Defences against takeovers: This chapter categorizes internal and external defensive tactics used by companies to deter hostile bids and outlines the regulatory requirements imposed by the UK City Code.
IV. The role of anti-trust regulation: This chapter examines the legislative frameworks, specifically the Sherman and Clayton Acts in the US and EU regulations, designed to prevent market monopolies resulting from excessive merger activity.
Keywords
Mergers, Acquisitions, Takeovers, Leveraged Buyouts, Management Buyouts, Disciplinary Takeovers, Synergies, Junk Bonds, Hostile Bids, Corporate Raiders, Anti-trust Regulation, Shareholder Value, Defensive Strategies, Market Power, Capital Structure.
Frequently Asked Questions
What is the primary focus of this report?
The report provides an overview of the economic, financial, and regulatory aspects of corporate takeovers, analyzing both the strategies of acquirers and the defensive mechanisms of target firms.
What are the key themes addressed?
The central themes include takeover typologies, the use of leveraged financing, defensive strategies against hostile bids, and the legal environment surrounding antitrust enforcement.
What is the core objective of the work?
The objective is to explain how mergers and acquisitions function as tools for corporate growth and management discipline, while acknowledging the limitations imposed by regulatory authorities.
What scientific methods are utilized?
The author utilizes an economic analysis approach, drawing upon financial theory, legal frameworks, and industry case studies to evaluate corporate behavior during acquisition processes.
What does the main body cover?
The main body details the mechanics of LBOs and MBOs, distinguishes between disciplinary and synergistic mergers, compares various defensive tactics across different jurisdictions, and reviews US and EU anti-trust legislation.
Which keywords best characterize the work?
Key terms include Mergers, Acquisitions, Leveraged Buyouts, Junk Bonds, Defensive Strategies, and Anti-trust Regulation.
How is a "disciplinary takeover" defined in the text?
It is defined as a takeover intended to correct non-value-maximizing practices of a target firm's management, such as excessive diversification or lavish spending.
What is the function of the "City Code" in the UK?
The City Code operates to oversee the conduct of takeover bids, ensuring that all shareholders are treated fairly and that the bid process is concluded within a predictable timeframe.
What distinguishes a "horizontal merger" from a "vertical merger"?
A horizontal merger involves competing firms in the same business activity, whereas a vertical merger occurs between firms at different stages of the production chain.
- Quote paper
- Reinhard Mittelstrasser (Author), 2000, Takeovers, Mergers and Acquisitions. An Introduction, Munich, GRIN Verlag, https://www.grin.com/document/338857
