ACQUISITION AND TAKEOVERS

• Klasifiksi acquisitions dan takeovers:

• Merger: BOD of two firms agree to the merger. The Target firm ceases to exist
and becomes part of firm have to agree to the merger
• Consolidation: a new firm is created after the merger
• Tender Offer: One firm offer to buy the outstanding stock of other firm at a
specific price and communicates this offer in advertisement and mailings to
stockholders. By doing so, it bypasses the incumbent management and coard
of directors of target firm. Consequently, tender offer are used to carry out
hostile takeovers. The acquired firm will continue to exist as long as there are
minority stock holders who refuse the tender. From a standpoint, most tender
offer eventually become mergers if the acquiring firm is successful in gaining
control of the target firm.
• Purchase of Assets: one firm acquire the assets of another, though a formal
vote by the shareholders of the firm being acquired is still needed.
•Management Buyout: A firm may be acquired by a group of management of
the company, usually with a tender offer. After this transaction, the acquired
firm can cease to exist as a publicly traded firm.
•Leverage Buyout: A firm may be acquired by a group of management of the
company, usually with a tender offer. After this transaction, the acquired firm
can cease to exist as a publicly traded firm.
 EMPIRICAL EVIDENCE ON VALUE EFFECTS OF TAKEOVERS

• Bukti menunjukkan PS yang diakuisisi akan menjadi

pemenang dalam takeover – mereka mendapatkan
excess return yang sangat signifikan bukan hanya
sekitar tanggal pengumuman, tetapi juga minggu-minggu
setelah itu.
• Jensen dan Ruback (1983) mereview 13 kasus yang
meneliti return sekitar pengumuman takeover dan
melaporkan rata-rata excess return 30% terhadap target
PS dalam proses tender offer dan 20% pada PS target
dalam merger yang sukses; Beberapa studi melaporkan
kenaikan harga saham dari perusahaan target sebelum
pengumuman takeover; menyarankan sangat perseptif
dari pasar modal atau kebocoran informasi tentang deal
yang sangat prospek
 EMPIRICAL EVIDENCE
• Kegagalan takeover disebabkan bidding firm menarik kembali
penawaran atau karena target firms menolaknya dengan keras. Desai
dan Kim (1983) menganalisa efek dari kegagalan takeover pada target
firm stakeholders dan menemukan bahwa ketika initial reaksi terhadap
pengumuman kegagalan adalah negatif, secara statistical tidak
signifikan, sejumlah target firms diakuisisi dalam jangka waktu 60 hari
dari kegagalan pertama akuisisi, earning signifikan excess return (50%
sampai 60%).
• Efek pengumuman akuisisi pada harga saham bidder firm tidak terlalu
efek. Jensen dan Ruback melaporkan excess return sebesar 4% untuk
PS bidding firm sekitar tender offer dan tidak ada excess return pada
saat merger. Jerrel, Brickley dan Netter, dalam penyelidikan tender
offer dari tahun 1962 sampai 1985, mencatat adanya penurunan dalam
excess return terhadap PS Bidding Firms dari 4.4% di tahun 1960
menjadi 2% di tahun 1970 menjadi negatif 1% pada tahun 1980. Studi
lain menunjukkan bahwa kira-kira sebagian dari seluruh bidding firms
mendapatkan negatif excess return sekitar pengumuman akuisisi. Ini
menyarankan bahwa PS ragu-ragu tentang persepsi nilai dari akuisisi
dalam sejumlah kasus yang cukup signifikan
 STEPS IN ACQUISITION
• DEVELOPING AN ACQUISITION STRATEGY
• ACQUIRED UNDERVALUED FIRMS
1. A CAPACITY TO FIND FIRMS THAT TRADE
AT LESS THAN THEIR TRUE VALUE
2. ACCESS TO THE FUNDS THAT WILL BE
NEEDED TO COMPLETE THE ACQUISITION
3. SKILL IN EXECUTION
• DIVERSIFY TO REDUCE RISK
 CREATING OPERATING OR
FINANCIAL SYNERGY
• OPERATING SYNERGIS CAN BE CATEGORIZED INTO:

1. ECONOMIES OF SCALE
2. GREATER PRICING POWER
3. COMBINATION OF DIFFERENT FUNGTIONAL STRENGTH
4. HIGHER GROWTH IN NEW OR EXISTING MARKETS

OPERATING SYNERGIES CAN AFFECT MARGINS AND

GROWTH, AND THROUGH THESE THE VALUE OF THE
FIRMS INVOLVED IN THE MERGER OR ACQUISITION.
 PAY OFF MERGERS
• Payoff can take form of either higher cash flows or a
lower cost of capital (discount rate) included are the
following:
• A combination of a firm with excess of cash or cash
slack (and limited cash) can yield a payoff in term of
higher value for the combined firm
• Debt capacity can increase when two firms combined,
their earnings and cash flows may become more stable
and predictable.This in turn to borrow more, which
creates a tax benefit for the combined firms. Higher cash
flows or lower cost of capital
• Tax can arise either from the acquisition taking
advantage of tax laws or from the use of net operating
losses to shelter income.
 TAKE OVER POORLY MANAGED FIRMS AND CHANGE
MANAGMENT

• Beberapa perusahaan tidak dimanaged

dengan optimal, dan yang lain sering yakin
menjalankan lebih baik dari current
manager. Akuisisi poorly managed firms
dan keluarkan incumbent management, at
least changing existing management
policy and practices, should make this firm
more valuable, allowing acquirer to claim
the increase in value. This value increase
is often termed the value of control.
 TAKEOVER POORLY MANAGED
FIRMS
• ALTHOUGH THIS COPORATE CONTROL STORY CAN BE
USED TO JUSTIFY LARGE PREMIUMS OVER THE MARKET
PRICE, THE POTENTIAL FOR ITS SUCCESS RESTS ON THE
FOLLOWING:
1. Poor performance of the firm being acquired should be
attributable to the incumbent management of the firm rather than
to market or industry factors that are not under management
control;
2. The acquisitions has to be followed by a change in management
practices, and the change has to increase value. As noted in the
last chapter, actions that enhance value increase cash flow from
existing assets, increase expected growth rates, increase the
length of growth period or reduce cost of capital
3. The market price of the acquisition should reflect the status quo,
that is, the current management of the firm and its poor business
practices. If the market price already has the control premium
built into it, the acquirer has little potential to earn the premium.
RESEARCH INDICATES TYPICAL
TARGET FIRMS
• RISET MENUNJUKKAN TIPIKAL TARGET
FIRMS YANG DIAKUISISI DENGAN HOSTILE
TAKEOVER:
1. It has underperformed other stocks in its
industry and the overall market, in terms of
returns to its stockholders in the years
preceding the takeover;
2. It has been less profitable than other firms in
its industry in the years preceding the
takeover;
3. It has a much lower stock holding by insiders
than do firm in its peer group.
 HOSTILE TAKEOVER
• Bhide meneliti konvekwensi hostile take over dan mencatat
perubahan-perubahan berikut:
1. Many of the hostile takeovers were followed by an increase in
debt, which resulted in a downgrading of the debt. The debt was
quickly reduced with proceeds from the sale of assets; however
2. There was no significant change in the amount of capital
investment in these firms
3. Almost 60% of the takeovers were followed by significant
divestitures in which half of more of the firm was divested. The
overwhelming majority of the divestitutes were in business areas
unrelated to the company’s core business (i.e, they constituted
reversal of corporate diversification done in earlier time periods)
4. There were significant management changes in 17 of the 19
hostile takeovers, with the replacement of the entire corporate
management team in seven of the takeovers.
CATER TO MANAGERIAL SELF-
INTEREST
• MOTIF DARI BEBERAPA AKUISISI
BUKANLAH MEMAKSIMALKAN
KEMAKMURAN PS TETAPI
MANAGERIAL SELF-INTEREST,
DIMANIFESTASIKAN DALAM MOTIF
BERIKUT:
• EMPIRE BUILDING
• MANAGERIAL EGO
• COMPENSATION AND SIDE BENEFITS
 CHOOSING TARGET FIRMS
• JIKA PERUSAHAAN SUDAH MENGIDENTIFIKASIKAN ALASAN UNTUK
AKUISISI, MAKA PEMILIHAN TARGET FIRMS ADALAH SEBAGAI BERIKUT:
• IF THE MOTIVE FOR ACQUISITION IS UNDERVALUATION, THE TARGET FIRMS
MUST BE UNDERVALUED
• IF THE MOTIVE FOR ACQUISITION IS DIVERSIFICATION, THE MOST LIKELY
TARGET FIRMS WILL BE IN BUSINESS THAT ARE UNRELATED TO AND
UNCORELATED WITH THE BUSINESS OF THE ACQUIRING FIRM
• IF THE MOTIVES FOR ACQUISITION IS OPERATING SYNERGY, THE TYPICAL
TARGET FIRM WILL VARY DEPENDING ON THE SOURCE OF SYNERGY. FOR
ECONOMIES OF SCALE, THE TARGET FIRM SHOULD BE THE SAME
BUSINESS AS THE ACQUIRING FIRM;
• IF THE MOTIVE FOR THE MERGER IS CONTROL, THE TARGET FIRM WILL BE
A POORLY MANAGED FIRM IN AN INDUSTRY WHERE THERE IS POTENTIAL
FOR EXCESS RETURN. IN ADDITION ITS STOCKHOLDINGS WILL BE WIDELY
DISPERSED (MAKING IT EASIER TO CARRY OUT THE HOSTILE TAKEOVER),
AND THE CURRENT MARKET PRICE WILL BE BASED ON THE PRESUMPTION
THAT INCUMBENT MANAGEMENT WILL CONTINUE TO RUN THE FIRM;
• IF THE MOTIVE IS MANAGERIAL SELF INTEREST, THE CHOICE OF TARGET
FIRM WILL REFLECT MANAGERIAL INTEREST RATHER THAN ECONOMIC
REASONS
 TARGET FIRMS CHARACTERISTICS GIVEN ACQUISITION
MOTIVES

• Undervaluation: Trades at a price the estimated value

• Divesification: is in bisnis different from the acquiring
firm’s bisnis
• Operating synergi: has the characteristics that create
financial synergy
Tax Savings: Provides a tax benefit to acquirer
Debt Capacity: is unable to borrow money or pay high
rates
Cash Slack: is a badly managed firm whose has
underperformed the market
Manager’s Interest: has characteristics that best meet
CEO’s ego and power needs
 Why do mergers fails?
• Lack of a post-merger plan to deliver on
synergy and control;
• Lack of Accountability;
• Culture Shock;
• Failure in consider external constraints
• Managerial Ego;
• The Market Price Hurdle
 Take over Restrictions
• Antitakeover Amendments
• Restriction on Acquisitions
ANALYZING MANAGEMENT AND
LEVERAGE BUYOUT
• VALUATION OF A BUYOUT: Fakta dilapangan manager
dan juga pengakuisisi lebih mempunyai akses informasi
yang tidak dimiliki oleh investor. Informasi ini
mengijinkan manager untuk menyimpulkan, jauh lebih
pasti dibandingkan dengan eksternal pengakuisisi,
bahwa harga saham perusahaan yang diakuisisi
kerendahan. Ini mungkin salah satu alasan untuk buyout.
Kedua, management perusahaan masih tetap setelah
buyout, tetapi cara mengambil keputusan investasi,
pembiayaan dan pembagian devidend mungkin saja
berbeda. Ini terjadi karena setelah akuisisi manager
akan lebih concerned bagaimana memaksimalkan nilai
perusahaan.
 VALUATION OF BUYOUT
• Fakta bahwa perusahaan yang terlibat dalam akuisisi
menjadi private bisnis dapat juga mempunyai efek
terhadap nilai. Investasi di private bisnis lebih sulit
dilikuidasi daripada investasi diperusahaan publik. Ini
dapat menciptakan signifikan diskon terhadap value.
Diskon ini mungkin lebih kecil apabila buyout karena
beberapa dari mereka dilakukan dengan maksud yang
jelas.
• Jika going private diharapkan meningkatkan responsif
manager untuk memaksimalkan nilai dalam jangka
panjang – karena mereka adalah pemilik dari perusahaan
– Cara menjalankan perusahaan ini dalam nilai
dimasukkan dalam arus kas. Kenaikan efisiensi dapat
diharapkan untuk meningkatkan arus kas jika
meningkatkan operating margin.
VALUING A LEVERAGE BUYOUT
• TINGKAT HUTANG DALAM LEVERAGED BUYOUT
MELEBIHI OPTIMAL DEBT RATIO, YANG BERARTI
BAHWA BEBERAPA HUTANG HARUS DILUNASI
SECEPATNYA AGAR PERUSAHAAN DAPAT
MENGURANGI COST OF CAPITAL DAN RISIKO
DEFAULT. PENJELASAN KEDUA BAHWA MANAGER
PADA UMUMNYA TIDAK DAPAT DIPERCAYAI UNTUK
INVESTASI ARUS KAS SECARA BIJAKSANA UNTUK
PS MEREKA; MEREKA PERLU ADANYA DISIPLIN
DENGAN PEMBAYARAN HUTANG UNTUK
MEMAKSIMALKAN ARUS KAS PADA PROJECT DAN
NILAI PERUSAHAAN. KETIGA. RATIO HUTANG BESAR
ADALAH TEMPORER DAN AKAN HILANG PADA SAAT
PERUSAHAAN MELIKUIDASI AKTIVA DAN MELUNASI
PORSI KEWAJIBANNYA YANG SIGNIFIKAN.