21: Mergers, Acquisitions and Corporate Control
KEY TERMS
acquisition, 718
asset sale, 745
board of directors, 752
bust-up, 745
conglomerate merger, 719
consolidation, 741
corporate control, 718
corporate governance, 751
divestiture, 745
dual-class recapitalisation, 743
economies of scale, 727
economies of scope, 728
employee stock ownership plan
(ESOP), 743
enterprise value, 735
goodwill, 746
horizontal merger, 718
hostile takeover, 742
hubris hypothesis of corporate
takeovers, 732
leveraged recapitalisation, 743
management buyout (MBO), 743
merger, 718
merger of equals, 742
mixed offerings, 739
public-to-private transactions,
742
pure share exchange merger, 738
resource complementarities, 728
reverse LBO, 743
reverse triangle merger, 741
spin-off, 745
split-off, 745
split-up, 745
statutory merger, 741
subsidiary merger, 741
synergy, 727
takeover, 718
takeover defences, 744
tender offer, 741
vertical merger, 718
QUESTIONS
Q21-1 What is meant by a change in corporate
control? List and describe the various
ways in which a change of corporate
control may occur.
Q21-2 What is a tender offer, and how can it be
used as a mechanism to orchestrate a
merger?
Q21-3 Elaborate on the significance of the
mode of payment for the shareholders of
the target company and their continued
interest in the surviving company.
Specifically, which form of payment
retains the shareholders of the target
company as shareholders in the surviving
company? Which payment form receives
preferential tax treatment?
Q21-4 What is the signalling theory of
mergers? What is the relationship
between signalling and the mode of
payment used in acquisitions? Is there
a relationship between the mode of
payment used in acquisitions and the
level of insider shareholdings of acquiring
companies?
Q21-5 Empirically, what are the wealth effects
of corporate control activities? Who
wins and who loses in corporate control
contests? What explanations or theories
are offered for the differences in returns
of acquiring companies’ ordinary equity?
Why are higher takeover premiums
paid in cash transactions than in share
transactions? How do other security
holders fare in takeovers?
Q21-6 Describe several different motives for
mergers. Are each of these motives likely
to increase bidder value?
Q21-7 Define the types of synergy that may
result from mergers. What are the sources
of these synergies?
Q21-8 Explain how agency problems may lead
to non-value-maximising motives for
mergers. Discuss the various academic
theories offered as the rationale for
motives induced by the agency problem.
Q21-9 Why does the precedent transactions
valuation method typically yield higher
valuations?
Q21-10 Would a large technology company and
a large conglomerate (that operates in
many industries) be good comparable
companies for a multiples-based
valuation? Why or why not?
Q21-11 Describe the relationship between
conglomerate mergers and portfolio