CHAPTER 10

MERGERS AND ACQUISITIONS

Rosita P. Chang, CFA

Honolulu, Hawaii, U.S.A.

Keith M. Moore, CFA

Greenlawn, New York, U.S.A.

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

  • Classify merger and acquisition (M&A) activities based on forms of integration and types of mergers.
  • Explain common motivations behind M&A activity.
  • Explain how earnings per share (EPS) bootstrapping works and calculate a company’s post-merger EPS.
  • Explain the relationship among merger motivations and types of mergers based on industry life cycles.
  • Contrast merger transaction characteristics by form of acquisition, method of payment, and attitude of target management.
  • Distinguish among pre-offer and post-offer takeover defense mechanisms.
  • Calculate the Herfindahl–Hirschman Index (HHI) and evaluate the likelihood of an antitrust challenge for a given business combination.
  • Compare the discounted cash flow, comparable company, and comparable transaction analyses for valuing a target company, including the advantages and disadvantages of each.
  • Calculate free cash flows for a target company and estimate the company’s intrinsic value based on discounted cash flow analysis.
  • Estimate the value of a target company using comparable company and comparable transaction analyses.
  • Evaluate a merger bid, calculate the estimated post-merger value of an acquirer, and calculate the gains accrued to the target shareholders versus the acquirer shareholders.
  • Explain the effects of price ...

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