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Corporate Finance Workbook: A Practical Approach, Second Edition by George H. Troughton, CFA, Martin S. Fridson, CFA, Michelle R. Clayman, CFA

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CHAPTER 10

MERGERS AND ACQUISITIONS

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 and payment method on the distribution of risks and benefits in a merger transaction.
  • Describe ...

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