Mergers Acquisitions Mark FieldingPritchard mefielding com 1 Reasons

Mergers & Acquisitions Mark Fielding-Pritchard mefielding. com 1

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 mefielding. com 2

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 mefielding. com 3

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 mefielding. com 4

Takeover of Quoted Companies Hostile takeovers Build small holdings Launch dawn raids 3% intentions announcement 30% forced offer mefielding. com 5

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 mefielding. com 6

Terms of Offer Share for Share • No tax • Easy exchange to gain access to ‘better’ company • No sector realignment if institution mefielding. com Bonds • No tax • 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 7

Defence Document Rebuts offer or recommends acceptance As for offer document only rule is that what is included must be true mefielding. com 8