1. 21-1 CHAPTER 21 Mergers and Divestitures Types of mergers Merger analysis Role of investment bankers Corporate alliances LBOs, divestitures, and holding companies

2. 21-2 Why do mergers occur? Synergy: Value of the whole exceeds sum of the parts. Could arise from: Operating economies Financial economies Differential management efficiency Increased market power Taxes (use accumulated losses) Break-up value: Assets would be more valuable if sold to some other company.

3. 21-3 What are some questionable reasons for mergers? Diversification Purchase of assets at below replacement cost Get bigger using debt-financed mergers to help fight off takeovers

4. 21-4 What is the difference between a “friendly” and a “hostile” takeover? Friendly merger: The merger is supported by the managements of both firms. Hostile merger: Target firm’s management resists the merger. Acquirer must go directly to the target firm’s stockholders try to get 51% to tender their shares. Often, mergers that start out hostile end up as friendly when offer price is raised.

5. 21-5 Reasons why alliances can make more sense than acquisitions Access to new markets and technologies Multiple parties share risks and expenses Rivals can often work together harmoniously Antitrust laws can shelter cooperative R&D activities

6. 21-6 Do mergers really create value? The evidence strongly suggests: Acquisitions do create value as a result of economies of scale, other synergies, and/or better management. Shareholders of target firms reap most of the benefits, because of competitive bids.

7. 21-7 Functions of Investment Bankers in Mergers Arranging mergers Assisting in defensive tactics Establishing a fair value Financing mergers Risk arbitrage

8. 21-8 Recent Mergers in Jamaica CIBC + Barclays = FCIB Pan Jam's Hardware & Lumber + Grace Kennedy's Rapid & Sheffield = ???? DB&G + Issa Trust & Merchant Bank = ???? Sagicor + LOJ = ???? LOJ + First Life = ???? First Global + George & Branday = ???? Pan Caribbean Financial Services + Manufacturers Sigma Merchant Bank = ???? Sigma Unit Trust + MMB = MSMB NEMWIL + Caribbean Home Insurance Company in Trinidad merged = Guardian General Insurance Limited Globe Insurance + Jamaica General Insurance Company = ???? Supreme Ventures Ltd. + Jamaica Lottery Company = ???? First Global + George & Branday = ????