Pertemuan 9

Rabu, 5 Desember 2012

MERGER AND ACQUISITION

Three Basic Legal Procedures

• Merger or consolidation – Merger Acquiring firms retains its name and its

identity, and it acquires all the asset and liabilities of the acquired firm.

– Consolidation entirely new firm is created

• Acquisition of stock – Purchase the firm’s voting stock with an exchange

of cash, shares of stock or other securities

• Acquisition of assets – Buying most or all of acquired company’s assets

Gains from Acquisition

• Synergy

– VAB > VA + VB ΔV = VAB – (VA + VB )

• Revenue enhancement

• Cost reductions

• Lower taxes

• Reducing in capital needs

Financial Side Effects of Acquisition

• Assume no synergy

Cost of Acquisition

• ΔV = VAB – (VA + VB )

• Total value of firm B to firm A, V*B , is

– V*B = ΔV + VB

• NPV of the merger is therefore

– NPV = V*B – Cost to firm A of the acquisition

• Merger premium

– Kelebihan pembayaran diatas market value

Illustration

• Suppose firm A estimate that firm B will give incremental value to it by 100.

• Firm B will agree if the price offered is 150, payable in cash or stock

Illustration

• NPV = V*B – Cost to firm A of the acquisition • NPV = (ΔV + VB ) – Cost to firm A of the acquisition

• (ΔV + VB ) = 100 + 100 = 200

• Case 1: Cash Acquisition • NPV = (ΔV + VB ) – Cost to firm A of the acquisition

• NPV = 200 – 150 = 50 (profitable)

• AB still have 25 shares outstanding, value of firm A after the merger

– VAB = VA + (V*B - cost)

– VAB = 500 +200 – 150 = $550

– Price per share after merger = $550/25 = $22

Illustration

• Case 2 Stock Acquisition Firm B come in as new shareholders in the merged firm • VAB = VA + VB + ΔV = $500 + $100 + $100 = $700

• Firm A should issue additional shares: – $150/20 = 7.5 additional shares

– After merge, outstanding shares 25 + 7.5 = 32.5 price per share = $700/32.5 = $21.54

– Firm B received 7,5 shares equivalent with • 7,5 x $21.54 = $161.55

• NPV = V*B – Cost to firm A of the acquisition = – $200 - $161.55 = $38.45

Cash or Stock?

• If acquisition results a gain (positive NPV)

– Cash is better than stock

• If acquisition results a loss (negative NPV)

– Stock is better than cash because the loss is shared between the two firms

• Control acquisition by paying cash does not affect the control of the acquiring firm