Term
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Definition
| when a firm purchases a second firm |
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Term
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Definition
| when a firm purchases a majority of another firm's assets (greater than 51%) |
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Term
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Definition
| occur when the management of the target firm wants the firm to be acquired |
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Term
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Definition
| occur when management of the target firm does not want the firm to be acquired |
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Term
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Definition
| this sometimes happens when unfriendly acquisitions occur |
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Term
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Definition
| when it has not sold shares on the public stock market |
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Term
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Definition
| when a firm has not sold very many shares on the public market |
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Term
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Definition
| the difference between the current market price of a target firm's shares and the price a potential acquirer offers to pay for the shares |
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Term
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Definition
| when a firm offers to pay an acquisition premium for a target firm's shares. they can be made with or without the support of the target firm. |
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Term
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Definition
| when the assets of two similar-sized firms are combined |
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Term
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Definition
| the price of each of the firm's shares times the number of shares outstanding |
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Term
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Definition
| a firm acquires former suppliers or customers |
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Term
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Definition
| a firm acquires a former competitor |
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Term
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Definition
| a firm gains access to complementary products through an acquisition |
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Term
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Definition
| a firm gains access to complementary markets through an acquisition |
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Term
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Definition
| there is no strategic relatedness between a bidding and a target firm |
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Term
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Definition
| scale economies that occur when the physical processes inside a firm are altered so that the same amounts of input produce a higher quantity of outputs. sources include marketing, production, experience, scheduling, banking, and compensation. |
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Term
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Definition
| economies achieved by the ability of firms to dictate prices by exerting market power |
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Term
| diversification economies |
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Definition
| economies achieved by improving a firm's performance relative to its risk attributes or lowering its risk attributes relative to performance. sources include portfolio management and risk reduction |
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Term
| ways merger and acquisition strategies can reduce production or distribution costs: |
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Definition
1. through economies of scale
2. through vertical integration
3. through the adoption of more efficient production or organizational technology
4. through the increased utilization of the bidder's management team
5. through a reduction of agency costs by bringing organization-specific assets under common ownership |
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Term
| why firms might want to engage in merger and acquisitions strategies |
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Definition
| to reduce production or distribution costs and for financial motivations |
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Term
| firms engage in merger and acquisition strategies for financial motivations such as: |
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Definition
1. to gain access to underutilized tax shields
2. to avoid bankruptcy costs
3. to increase leverage opportunities
4. to gain other tax advantages
5. to gain market power in product markets
6. to eliminate inefficient target managment |
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Term
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Definition
| wealthy individuals looking to invest in entrepreneurial ventures or venture capital firms |
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Term
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Definition
| typically raise money from numerous smaller investors that they then invest in a portfolio of entrepreneurial firms. |
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Term
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Definition
| an entrepreneur who receives compensation for risk taking by selling his equity in a firm |
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Term
| why firms engage in mergers and acquisitions (these do not generate profits for bidding firms) |
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Definition
1. to ensure survival
2. free cash flow
3. managerial hubris
4. the potential for above-normal profits |
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Term
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Definition
| unrealistic belief held by managers in bidding firms that they can manage the assets of a target firm more efficiently than the target firm's current management |
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Term
| market for corporate control |
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Definition
| the market that is created when multiple firms actively seek to acquire one or several firms |
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Term
| rules for bidding firm managers |
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Definition
1. search for valuable and rare economies of scope
2. keep information away from other bidders
3. keep information away from targets
4. avoid winning bidding wars
5. close the deal quickly
6. operate in "thinly traded" acquisition markets |
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Term
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Definition
| a market where there are only a small number of buyers and sellers, and where information about opportunities in this market is not widely known |
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Term
| rules for target firm managers |
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Definition
1. seek information from bidders
2. invite other bidders to join the bidding competition
3. delay but do not stop the acquisition |
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Term
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Definition
| include any of a variety of actions that the target firm managers can take to make the acquisition of the target prohibitively expensive |
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Term
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Definition
| include a variety of relatively minor corporate governance changes that, in principle, are supposed to make it somewhat more difficult to acquire a target firm |
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Term
| supermajority voting rules |
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Definition
| specify that more than 50% of the target firm's board must approve a takeover |
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Term
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Definition
| targets using this tactic fend off an acquisition by taking over the firm or firms bidding for them |
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Term
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Definition
| sometimes a bidding firm is interested in just a few of the businesses currently being operated by the target firm. to prevent an acquisition a target firm can sell off these "crown jewels" making the bidding firm less likely to be interested in acquiring the target |
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Term
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Definition
| another bidding firm that agrees to acquire a particular target in the place of the original bidding firm |
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Term
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Definition
| is a compensation arrangement between a firm and its senior management team that promises these individuals a substantial cash payment if the firm is acquired and they lose their jobs in the process |
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