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7 Cards in this Set
- Front
- Back
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Coase Framework
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Firm must decide between internal and external production costs.
Specialization can suggest why a merger should occur but also why it should NOT occur. If cheaper to buy from a specialized external supplier than to make internally. |
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Value Increasing Theories
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Transaction costs (balance int/ext)
Synergies (economy of scale, combo) Disciplinary (competition, removal) |
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Value Decreasing Theories
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High FCF lead to value decreasing decisions.
Managerial entrenchment (increase their value to firm but not value to shareholders, make decisions that make them harder to replace). |
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Winner's Curse
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In a bidding war, bids will fall above and below actual value. Highest bid (outlier) wins and pays too much.
To offset - offer stock rather than cash. Then both bidder and target bear cost of overbidding. |
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Neutral Theory (Hubris Theory)
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Zero gain from mergers. Gains by target are merely offset by overpayment of acquirer.
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Bidder Cost
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Bidding is expensive (require term fee)
Since expensive, preemptive bids are made to preclude additional bids. Therefore, targets often receive higher prices with less bidders. |
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Toehold
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Initial stake in target to help recoup bidding costs.
May deter other bidders. Size is function of expected synergies from merger. |
