Terms:

1. Takeover : Tiếp quản

2. Merger: sáp nhập
3. Acquisition: việc mua lạimột doanh nghiệp
4. A raid: việc mua càng nhiều cổ phiếu của công ty trên thị trường chứng khoán
càng tốt.
5. Buyout: Mua lại
6. LBOs = Leveraged buyouts: Mua lại dùng đòn bẩy
7. MBO = Management buyouts: mua lại để giữ quyền quản lý
8. Vertical: Thu mua theo chiều dọc
9. Horizontal: Thu mua theo chiều ngang
10. Diversification: Đa dạng hóa
11. Hostile: thù địch
Question:
1. Merger Concepts Indicate whether you think the following claims
regarding
takeovers are true or false. In each case, provide a brief explanation for your
answer.
a. By merging competitors, takeovers have created monopolies that will raise
product prices, reduce production, and harm consumers.
b. Managers act in their own interests at times and in reality may not be
answerable to shareholders. Takeovers may reflect runaway management.
c. In an efficient market, takeovers would not occur because market price would
reflect the true value of corporations. Thus, bidding firms would not be justified in
paying premiums above market prices for target firms.
d. Traders and institutional investors, having extremely short time horizons, are
influenced by their perceptions of what other market traders will be thinking of
stock prospects and do not value takeovers based on fundamental factors. Thus,
they will sell shares in target firms despite the true value of the firms.
e. Mergers are a way of avoiding taxes because they allow the acquiring firm to
write up the value of the assets of the acquired firm.
f. Acquisitions analysis frequently focuses on the total value of the firms involved.
An acquisition, however, will usually affect relative values of stocks and
bonds, as well as their total value.
a. False. Although the reasoning seems correct, in general, the new firms do
not have monopoly power. This is especially true since many countries have
laws limiting mergers when it would create a monopoly.
b. True. When managers act in their own interest, acquisitions are an
important control device for shareholders. It appears that some acquisitions
and takeovers are the consequence of underlying conflicts between
managers and shareholders.
 c. False. Even if markets are efficient, the presence of synergy will make the
value of the combined firm different from the sum of the values of the
separate firms. Incremental cash flows provide the positive NPV of the
transaction.
d. False. In an efficient market, traders will value takeovers based on
“fundamental factors” regardless of the time horizon. Recall that the
evidence as a whole suggests efficiency in the markets. Mergers should be
no different.
e. False. The tax effect of an acquisition depends on whether the merger is
taxable or non-taxable. In a taxable merger, there are two opposing factors
to consider, the capital gains effect and the write-up effect. The net effect is
the sum of these two effects.
f. True. Because of the coinsurance effect, wealth might be transferred from
the stockholders to the bondholders. Acquisition analysis usually disregards
this effect and considers only the total value.
2. Merger Accounting Explain the difference between purchase and pooling of
interests accounting for mergers. What is the effect on cash flows of the
choice of accounting method? On EPS?
In the purchase method, assets are recorded at market value, and goodwill is
created to account for the excess of the purchase price over this recorded
value. In the pooling of interests method, the balance sheets of the two firms
are simply combined; no goodwill is created. The choice of accounting
method has no direct impact on the cash flows of the firms. EPS will
probably be lower under the purchase method because reported income is
usually lower due to the required amortization of the goodwill created in the
purchase.
3. Merger Rationale Explain why diversification per se is probably not a good
reason for a merger. 
When any company operates for a longer period in the industry the chances
of its expansion becomes a necessity. The mode of its expansion can be in
the form of expanding its own plant or it can think of merging with some
other entity. In the same breath, it has to be said that while merging with
some other entity (which might be/ might not be from the same industry)
risk factors loom large for the acquiring company.
4. Corporate Split In May 2005, high-end retailer Nieman Marcus announced
plans to sell off its private label credit card business. Unlike other credit
cards, private label credit cards can be used only in a particular merchant’s
store. Why might a company split off a division? Is there a possibility of
reverse synergy?
A spinoff may occur for various reasons. A company may conduct a spinoff
so it can focus its resources and better manage the division that has more
long-term potential. Businesses wishing to streamline their operations often
sell less productive or unrelated subsidiary businesses as spinoffs.
 Reverse synergy is a possibility. An added advantage is that performance
evaluation becomes much easier once the split is made because the new
firm's financial results (and stock prices) are no longer commingled.
5. Are poison pills good or bad for stockholders? How do you think acquiring
firms are able to get around poison pills? 
It depends on how they are used. If they are used to protect management,
then they are not good for stockholders. If they are used by management to
negotiate the best possible terms of a merger, then they are good for
stockholders.
6. Describe the advantages and disadvantages of a taxable merger as opposed
to a tax-free exchange. What is the basic determinant of tax status in a
merger? Would an LBO be taxable or nontaxable? Explain.
One of the primary advantages of a taxable merger is the write-up in the
basis of the target firm’s assets, while one of the primary disadvantages is
the capital gains tax that is payable. The situation is the reverse for a tax-free
merger.
The basic determinant of tax status is whether or not the old stockholders
will continue to participate in the new company, which is usually
determined by whether they get any shares in the bidding firm. An LBO is
usually taxable because the acquiring group pays off the current
stockholders in full, usually in cash.
7. Economies of Scale What does it mean to say that a proposed merger will
take advantage of available economies of scale? Suppose Eastern Power Co.
and Western Power Co. are located in different time zones. Both operate at
60 percent of capacity except for peak periods, when they operate at 100
percent of capacity. The peak periods begin at 9:00 a.m. and 5:00 p.m. local
time and last about 45 minutes. Explain why a merger between Eastern and
Western might make sense
Economies of scale occur when average cost declines as output levels
increase. A merger in this particular case might make sense because Eastern
and Western may need less total capital investment to handle the peak
power needs, thereby reducing average generation costs.
8. Hostile Takeovers What types of actions might the management of a firm
take to fight a hostile acquisition bid from an unwanted suitor? How do the
target firm shareholders benefit from the defensive tactics of their
management team? How are the target firm shareholders harmed by such
actions? Explain.
Among the defensive tactics often employed by management are seeking
white knights, threatening to sell the crown jewels, appealing to regulatory
agencies and the courts (if possible), and targeted share repurchases.
Frequently, antitakeover charter amendments are available as well, such as
poison pills, poison puts, golden parachutes, lockup agreements, and
supermajority amendments, but these require shareholder approval, so they
 can’t be immediately used if time is short. While target firm shareholders
may benefit from management actively fighting acquisition bids, in that it
encourages higher bidding and may solicit bids from other parties as well,
there is also the danger that such defensive tactics will discourage potential
bidders from seeking the firm in the first place, which harms the
shareholders.
9. Merger Offers Suppose a company in which you own stock has attracted
two takeover offers. Would it ever make sense for your company’s
management to favor the lower offer? Does the form of payment affect your
answer at all?
In a cash offer, it almost surely does not make sense. In a stock offer,
management may feel that one suitor is a better long-run investment than the
other, but this is only valid if the market is not efficient. In general, the
highest offer is the best one.
The management of the target firm might favor the lower offer if the
acquiring firm making the lower offer is a friendlier takeover than the one
with the highest offer. Moreover, if the form of payment is using shares of
stock then the management of the target firm might favor the lower offer in
order to pay fewer taxes on its capital gains.
10. Merger Profit Acquiring firm stockholders seem to benefit little from
takeovers. Why is this finding a puzzle? What are some of the reasons
offered for it? Questions and Problems connect
Various reasons include: (1) Anticipated gains may be smaller than thought;
(2) Bidding firms are typically much larger, so any gains are spread thinly
across shares; (3) Management may not be acting in the shareholders’ best
interest with many acquisitions; (4) Competition in the market for takeovers
may force prices for target firms up to the zero NPV level; and (5) Market
participants may have already discounted the gains from the merger before it
is announced.