1. Mergers & Acquisitions
Mark Fielding-Pritchard
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2. Reasons for Mergers & Takeovers
Economies of scale
Supply chain integration, backwards and forwards
Expansion, new or existing markets or products
Elimination of competitor
Complimentary resources
Management capability
Utilisation of surplus funds
Tax shields
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3. Takeover of Unquoted Companies
Approach made and value agreed by negotiation
The biggest benefit is called bootstrapping
A quoted company has a P/E of (say) 30
A comparable unquoted company will therefore have a P/E of 15
If the quoted company pays a premium and buys the unquoted company at a price based on a P/E of 20 it’s own share price will increase by 30 times the target’s earnings
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4. Hostile Takeover Strategies
Market Accumulation followed by an Open Offer; (most common)
Negotiated Deal with Financial Institutions followed by an Open Offer;
Negotiated Deal with a breakaway Promoter Fraction followed by an Open Offer;
Direct offer to Shareholders
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5. Takeover of Quoted Companies
Hostile takeovers
Build small holdings
Launch dawn raids
3% intentions announcement
30% forced offer
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6. The Offer Document
Shareholders of target receive from the potential acquirer
Explains why the offer should be accepted
Terms of the offer, choose from
1) Share for share exchange
2) Loan stock, or
3) Cash
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7. Terms of Offer Share for Share No tax
Easy exchange to gain access to ‘better’ company
No sector realignment if institution
Bonds
Bonds can be redeemed over several years so maximising tax allowances
Guaranteed interest income
Less risky than equity
Cash
Cash is cash
Will crystallise tax liability
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8. Defence Document Rebuts offer or recommends acceptance
As for offer document only rule is that what is included must be true
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