Chapter 1

The Takeover Process

 Change Forces Driving Mergers
1. Technological change
2. Efficiency of operations
3. Globalization and freer trade
4. Changes in industry organization
5. New industries
6. Deregulation and regulation
7. Favorable economic and financial conditions
8. Negative trends in industries and economies
9. Widening inequalities in income and wealth
10. High valuation of equities (1990s)

Chapter 1-2
 M&A Terminology
 Merger
• Negotiated deals
• Mutuality of negotiations
• Mostly friendly
 Tender offers
• Offer made directly to the shareholders
• Hostile when offer made without
approval of the board
 Restructuring — changes to improve
operations, policies, and strategies

Chapter 1-3
 Types of Mergers
 Horizontal mergers
• Between firms in same business activity
• Rationale
– Economies of scale and scope
– Synergies (ex. combining of best practices)
• Government regulation due to potential
anticompetitive effects
 Vertical mergers
• Combinations between firms at different stages
• Goal is information and transaction efficiency

Chapter 1-4
 Types of Mergers
 Conglomerate mergers
• Firms in unrelated business activities
 Distinctions between conglomerate and
nonconglomerate firms
• Investment companies – diversify to reduce
portfolio risk
• Financial diversified – provide funds and
expertise on generic management functions of
planning and control
• Concentric diversified – combine with firms in
less related activities to broaden potential
markets
Chapter 1-5
 Mergers in a Legal Framework
 Statutory merger — formal legal
procedures
 Short-form merger — streamlined legal
procedures when ownership is 90%
 Holding company — parent company has
a controlling interest

Chapter 1-6
 Tender Offers
 Bidder seeks target's shareholders
approval
 Minority shareholders
• Terms may be "crammed down"
• May be subject to "freeze-in"
• Minority may bring legal actions
• 2001-2002, many minority squeeze-outs
– Usually reversing equity carve-out
– Parents often make high bid to avoid
shareholder lawsuits
Chapter 1-7
 Tender Offers
 Kinds of tender offers and provisions
• Conditional vs. unconditional
• Restricted vs. unrestricted
• "Any-or-all" tender offer
• Contested offers
• Two-tier offers
• Three-piece suitor

Chapter 1-8