1. MERGERS & ACQUISITIONS FIN 335 Supplemental Material

2. Dr. David P. EchevarriaAll Rights ReservedSlide 2 MERGERS & ACQUISITIONS W Why do firms merge or acquire other firms? Several possibilities. l Increase market power l Acquire financial strength l Acquire financial strength, l Tax loss carry forwards l Acquire specific product lines l Achieve synergies l Gain economies of scale W Strategies subject to debate: Prevalent belief is that M&A result in increased profits, competitiveness, & increased stockholder wealth. Evidence reveals this is not necessarily so…

3. Dr. David P. EchevarriaAll Rights ReservedSlide 3 I. BASIC DEFINITIONS A. Merger; combination of two firms into one. B. Acquisition; one business buys another. 1.Cash. 2.Securities. 3.Combination of cash and securities.

4. Dr. David P. EchevarriaAll Rights ReservedSlide 4 I. BASIC DEFINITIONS C. General Process; Acquisitions 1. Initial contacts between management teams. acquirertarget 2. Tender offer by acquirer to target company stockholders. 3. Stockholders required to vote approval. 4. Acquirer purchases majority or complete interest.

5. Dr. David P. EchevarriaAll Rights ReservedSlide 5 I. BASIC DEFINITIONS D. General Process; Merger 1. Initial contacts between management teams. 2. Negotiations as to new name, management team. 3. Stock exchange details negotiated. 4. Merger proposal goes to stockholders for vote. 5. If stockholders approve, deal consummated when stock changes hands.

6. Dr. David P. EchevarriaAll Rights ReservedSlide 6 II. TERMINOLOGY OF M&A A. "BEAR HUG" B. "SATURDAY NIGHT SPECIAL“ C. “HOSTILE TAKEOVER” D. “WHITE NIGHT” E. “SHARK REPELLLENT” F. “PAC-MAN” g. “POISON PILL”

7. Dr. David P. EchevarriaAll Rights ReservedSlide 7 III. RESTRUCTURING FIRMS. W After the M&A activity in the 1980's, many companies were left with large amounts of debt. Many deals went “south”. A. The most prevalent response was to restructure the resulting reorganizations. 1. Spinoff: create new independent company via sale or distribution of new shares 2. Carve-outs: selling minority interest in a subsidiary: 3. Tracking stock: stock issued by parent to track fortunes of a particular division or group.