merger and acquisition 1 feb. 2011

8/7/2019 Merger and Acquisition 1 Feb. 2011

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Merger and Acquisition

Dr. Madhuri Malhotra

1st February 2011


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To be Discussed

Recap: Corporate Restructuring /

reorganizing

Basic forms of transferring ownership Acquisitions

Divestiture

Buy Outs


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Corporate Reorganization

Integration of

existing Companies

Restructuring of

existing company with

or without split up

Through Transfer of Assets

Mergers

Amalgamation

Through Transfer of Equity

Acquisition

Take over


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Reasons of Restructuring


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Unable or unwilling to restructure

themselves by making the normal

business decisions. Objectives include Investment synergies

Instill discipline among the managers


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Basic Forms ofTransferring

ownership Acquisition

Divestitures

Buyouts

are the basic forms of ownership transfer


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Basic Forms ofTransferring

ownership Acquisition Acquisition of assets

Acquisition of stocks

Merger Divestiture

Sale

Spin Off

Buy Out LBO

MBO


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Acquisition of Stock

One company the bidder, takes over

another company by acquiring target

companys common stock The bidder

company first submits the tender offer.


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Acquisition of Assets

by purchasing its assets rather than by

purchasing its stocks.

The payment is made to the target firm rather

than to the shareholders

The key assets of the target company are purchased.

This is particularly popular in the case of bankrupt

companies, who might otherwise have valuable assets

which could be of use to other companies, but whosefinancing situation makes the company unattractive for

buyers.


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Divestiture

Divestiture or divestment, is the release, rather than theacquisition, of assets.

It is reverse of an investment,

Carried out for financial, state mandated, or ethicalreasons.

Assets can be divested slowly over time, or in a chunk,depending on which strategy works better for thecompany or institution doing the divesting.

When a large stock holder engages in divestiture, it candramatically change the face of the company beingdivested by breaking up the stock, and it can also send apowerful message. (Signalling)


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Divestiture

For a business, divestiture is the removal

of assets from the books. Businesses

divest by the selling of ownership stakes,

the closure of subsidiaries, the bankruptcy

of divisions, and so on.


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Motives for divestiture

Change of focus or corporate strategy

Unit unprofitable

Sale to pay off leveraged finance

Antitrust

Need cash

Defend against takeover

Good price


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Defensive divestitures

Company is worried about being taken over

sells crown jewels so theyre not attractive anymore


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Divestiture: Sale and Spin Off

Companies use sales and spinoffs todivest themselves of assets.

A sales transfers ownership of specificassets, such as separate division, toanother company, usually for cash.

A spinoff converts a division or subsidiary

into a stand alone company whose sharesare distributed to the parent companyscommon shareholders.


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Spin Off

The creation of an independent company

through the sale or distribution of new

shares of an existing business/division of a

parent company.


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Spin offs

Typically parent corporation distributes onpro rata basis, all the shares it owns insubsidiary to its own shareholders.

No money generally changes hands

Non taxable event

Spin offs are a distribution of subsidiary

shares to parent company shareholders No shares (or assets) of the subsidiary are sold to

the market (IPO) or to acquirer (divestiture)


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Some sales and spinoffs are prompted by

the threat of acquisition

Managers may sell weak business units toimprove their companys stock price when

they anticipate a takeover.


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businesses wishing to 'streamline' their

operations often sell less productive, or

unrelated subsidiary businesses as

spinoffs. The spun-off companies are

expected to be worth more as independent

entities than as parts of a larger business.


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Choice between sell off and spin off Sell off is the desirable alternative if another party is

willing to pay more than what the entity is worth on astand alone basis. Spin off is the only option if thereare NO Buyers

Spin Offs are tax favored in the US , UK and other

countries.

Spin Off is the desirable alternative when there is noSynergy between a companys different businesses.

An asset sale generates cash, whereas spin Offs donot. So a company in need may prefer sell off


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As far as financial accounting is

concerned, a parent accounts for a spin off

transaction as a stock dividend but

recognizes gain / loss equal to difference

between sales proceeds and book value in

case of asset sale.


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Disinvestment Vs Divestment: What's the

Difference ?


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Disinvestment

Shrinkage of capital investment caused by

the failure of a firm to maintain its capital

assets which are being used up or by

the sale of the capital goods by the firm,

such as the machinery / equipment

owned by it.


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Divestment

Disposal of a business or a segment of the business. Italso means the disposal of certain sections of abusiness.

It is usually done when a company finds that one of the

divisions under its administration is carrying out thoseactivities which are not compatible with what it regardsas its core business activities.

The term divestment is also known as divestiture. Itrefers to the reduction of some kind of assets, which isdone to either attain some financial or social goals. Theterm divestment is contrary to the term investment.


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Disinvestment

Its a sell off of the stake held by a

promoter in a company to other outsiders

or public.

Exit mechanism for promoters of a

company.


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Hive off

A hive off is a separation of some of the assetsand liabilities, or only assets belonging to acompany, from its balance sheet into thebalance sheet of another company.

The objective of Hive off is to separatebusinesses or a group of assets that are distinctfrom other businesses in the company andwherein a new strategic interest needs to becreated

Usually hive offs are made to induct a newpartner such as collaborator or strategicinvestor.

merger and acquisition 1 feb. 2011

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