Main task: task 2.3-mergers and acquisitions report (corporate

ACTIVITY BRIEF FOR ASSESSMENT 2

ACADEMIC YEAR 2022 – 2023 – TERM II

Course MCO201 – Corporate Finance (3CH/4ECTS)

Instructor
Dawid Brychcy
Pete Nicolau

Participation in all assessment activities stated in this document is required. An overall course total of 70

points is required to pass the course. Due dates and times are always in Geneva time.

Assessment Choose an assessment category

Description Due date and
time

Weight of
course total

Task 2.1: Quiz on Bonds and Stock Valuation

Assessment type: Quiz

Description: Quiz on Bonds, and Bond/Stock valuation. (Session 4
and 5).

5%

Task 2.2: Quiz on Risk and Cost of Capital / Corporate Capital
Structure

Assessment type: Quiz

Description: Quiz on Risk and Cost of Capital / Corporate Capital
Structure (Session 6 and 7).

5%

Main task

Task 2.3: Mergers and Acquisitions Report

Assessment type: Exam

Description: Students will critically analyze the parties, and actions
involved during a hostile takeover.

See sections below for further details.

50%

INSTRUCTIONS

Main task: Mergers and Acquisitions Report

Students are required to identify, and critically evaluate a hostile acquisition. Students must reference the
source of information regarding their hostile takeover case. Please consider the following;

“Examine a hostile acquisition and discuss the tactics employed by both the predator and the target
companies. Please discuss a real life example of the hostile take-over and which of the tactics, you have just
discussed, were used”

Students should aim for approx. 1000 – 1500 words in total. Please follow Harvard Referencing System and
the formatting below.

July 2nd, 17:00 CET
2023

July 9th, 17:00 CET
2023

July 23rd, 17:00 CET

2023

The due date for this assessment is July 23rd, 2023, 17:00pm CET

FORMAT

Start and due Date:

2 hours

Resources needed: open-book exam, calculator or Excel, internet

Attachments allowed: PDF or word file

Word Count: 1.000 – 1.500 words

All refencing and citations require Harvard referencing style.

LEARNING OUTCOMES

 Define the purposes and scope of mergers and acquisitions in terms of the legal and economic

consequences

 Evaluate the impact of mergers and acquisitions on the participating parties

 Describe the differences between mergers, and hostile acquisitions

 Critically interpret a company’s financials in relation to the environment/competitors.

ASSESSMENT CRITERIA

Task 2.1 Quiz on Bonds and Stock Valuations

The quiz will be numerical and consist of 10 multiple choice questions. Calculations will be required.

Task 2.2 – Quiz on Risk and Cost of Capital and Corporate Capital Structure

The quiz will be numerical and consist of 10 multiple choice questions. Calculations will be required.

ADDITIONAL INFORMATION

Rubric: written assignments

Criteria Accomplish
ed (A)

Proficient
(B)

Partially proficient
(C)

Borderlin
e (D)

Fail (F) Weight on
assessme

nt

Problem
identificati
on

The business
issue has been
correctly
identified, with
a competent
and
comprehensive
explanation of

The student
correctly
identified
the issue(s),
taking into
account a
variety of
environment

The student correctly
identified the case
(issues), considering
obvious
environmental/context
ual drivers. There is
evidence of analysis,
but it lacks depth.

The student
correctly
identified
the issue(s)
but analysis
was weak.
An absence
of context –

The student
failed to
correctly
identify the
issue(s);
analysis was
incorrect or
too

30%

Due Date: 23rd of July 2023, 17:00 CET

Length of the time-limited assignment:

The due date for this assessment is July 2nd, 2023, 17:00pm CET

The due date for this assessment is July 9th, 2023, 17:00pm CET

key driving
forces and
considerations.
Impact on
company
operations has
been correctly
identified.
Thorough
analysis of the
issue is
presented.

al and
contextual
drivers. Key
case
information
has been
identified
and
analyzed.

the work is
basically
descriptive
with little
analysis.

superficial to
be of use;
information
was
misinterprete
d.

Information
gathering

The student
showed skill in
gathering
information
and analyzing
it for the
purposes of
filling the
information
gaps identified.
Comprehensiv
e and relevant.

Relevant
information
gaps were
identified
and
additional
relevant
information
was found
to fill them.
At least two
different
types of
sources
were used.
The student
demonstrate
s coherent
criteria for
selecting
information
but needs
greater
depth.

The student correctly
identified at least one
information gap and
found relevant
information, but which
was limited in scope.
Some evidence of
sound criteria for
selecting information
but not consistent
throughout. Needs
expansion.

An
information
gap was
identified
and the
student
found
additional
information
to fill it.
However,
this was
limited in
scope.
Weak
criteria for
the
selection of
necessary
information.

Information
was taken at
face value
with no
questioning
of its
relevance or
value. Gaps
in the
information
were not
identified or
were
incorrect.

20%

Conclusion
s

The student
evaluated,
analyzed,
synthesized all
information
provided to
create a
perceptive set
of conclusions
to support the
decisions and
solutions.

The student
evaluated,
analyzed
and
synthesized
to create a
conclusion(s
) which
support
decisions
and
solutions.

The student reached
conclusions, but they
were limited and
provided minimal
direction for decision-
making and solutions.

The
conclusion
was
reasonable
but lacked
depth and
would not
be a basis
for suitable
strategy
developme
nt.

The student
formed a
conclusion,
but it was not
reasonable.
It was either
unjustified,
incorrect or
unrelated to
the case in
hand.

25%

Solutions The student
used problem
solving
techniques to
make
thoughtful,
justified
decisions
about difficult
and conflicting
issues. A
realistic
solution was
chosen which
would provide
maximum
benefit to the
company.
Alternative
solutions were

The student
used
problem
solving
techniques
to make
appropriate
decisions
about
complex
issues.
Relevant
questions
were asked
and
answered. A
realistic
solution was
chosen.
Alternatives

The student used
problem-solving
techniques to make
appropriate decisions
about simpler issues.
The solution has
limited benefit but
does show
understanding of
implications of the
decision. Alternatives
were mentioned but
not explored.

The student
used
problem
solving
techniques
to make
decisions
about
simpler
issues but
disregarded
more
complex
issues.
Implications
of the
decision
were not
considered.
Alternatives

The student
formed a
conclusion,
but it was not
reasonable.
It was either
unjustified,
incorrect or
unrelated to
the case in
hand.

25%

explored and
ruled out.

were
identified,
explored
and ruled
out.

were not
offered.

Lecture Outline

• Corporate Investment and Financing Decisions

• The Role of the Financial Manager and the
Opportunity Cost of Capital

• Goals of the Corporation

• Agency Problems and Corporate Governance

Mergers and

Acquisitions
Session 9

Session Outline

 Sensible Motives for Mergers

 Some Dubious Reasons for Mergers

 Estimating Merger Gains and Costs

 The Mechanics of a Merger

 Proxy Fights, Takeovers, and the Market

for Corporate Control

 Merger Waves and Merger Profitability

Sensible Motives

for Mergers

Merger Announcements
Pre Covid

The Number of Mergers Involving
U.S. Companies, 1985–2017

 Horizontal

 Vertical

 Conglomerate

Motives for

Mergers

 Economies of

Scale

 Economies of

Vertical

Integration

 Complementary

Resources

 Surplus Funds

 Eliminating

Inefficiencies

 Industry

Consolidation

Motives for

Mergers

 Cost

Reduction

 Staff

Reduction

 Horizontal

Mergers

 Conglomerate

s

Economies

of Scale

 Back or

Forward

 Coordination

& Admin

 Current

Trends

Vertical

Integration

 Keys to

Success

 Faster &

Cheaper

 Opportunitie

s

Complementa

ry

Resources

 Lack of

Opportunitie

s

 Share

Buyouts

 Cash Flows

Surplus

Funds

 Non Cash

Assets

 Opportunitie

s

 Improvement

Eliminating

Inefficienc

ies

 Saturation

 Cost Cutting

 Reinvestment

Industry

Consolidati

on

Bank of America’s
Family Tree

Note: Ironically, MBNA was once owned by a previous version of

Bank of America, which sold it in an IPO.

Some Dubious

Reasons for

Mergers

 Diversificat

ion

 Boot Strap

 Lower

Financing

Costs

Dubious

Reasons for

Mergers

 Against

Dividends

 Fresh

Opportunitie

s

 Risk and

Premium

Diversifica

tion

 Earnings Per

Share

 Economic

Benefit

 Price to

Earning

Ratio

Boot Strap

Impact of Merger on Market Value
and Earnings Per Share of World
Enterprises

Effects of Merger on Earnings
Growth

 Economies of

Scales

 Issues

 Interest

Rates

Lower

Financing

Costs

Estimating

Merger Gains

and Costs

Estimating Merger Gains
and Costs

• Questions

• Is there an overall economic gain to the merger?

• Do the terms of the merger make the company and

its shareholders better off?

PV(AB) > PV(A) + PV(B)

Estimating Merger Gains and
Costs

Gain = PV
AB

– (PV
A

+ PV
B
) = DPV

AB

Cost = cash paid – PV
B

NPV = gain – cost

= DPV
AB

– (cash – PV
B
)

Estimating Merger Gains and
Costs

PV
A

= $200

PV
B

= $50

Gain = DPV
AB

= +$25

PV
AB

= $275 million

Cost = cash paid – PV
B

= 65-50 = $15 million

Example: Two firms merge, creating $25 million in

synergies. If A buys B for $65 million, the cost is $15

million.

Estimating Merger Gains and
Costs

NPV
A

= 25-15 = +$10 million

NPV
A

= wealth with merger – wealth without merger

= (PV
AB

– cash) – PV
A

= ($275-$65) -$200

= $10 million

Example: The NPV to A will be the difference

between the gain and the cost.

Right and Wrong Ways to Estimate
the Benefits of Mergers

Estimated net gain = DCF valuation of target, including merger benefits –
cash required for acquisition

• Ask why the two firms should be worth more together than
apart.

• You add value only if you can generate additional economic
rents.

The Mechanics of

a Merger

Accounting for the
Merger

Possible Tax
Consequences

Proxy Fights,

Takeovers, and

the Market for

Corporate

Control

 Right to Vote

 Change

 Control

 Stakeholders

 Mergers

Proxy Contests

 Tender Offer

 Role of Courts

 Position

Takeovers

Defensive Tactics

42

• The corporate charter consists of the articles of incorporation
and corporate bylaws that establish the governance rules of the
firm

• Firms frequently amend corporate charters to make acquisitions
more difficult via super-majority amendments and classified
boards

More Defensive Tactics

43

• Managers of target firms may attempt to negotiate standstill
agreements, contracts wherein the bidding firm agrees to limit
its holdings in the target firm

• These agreements usually lead to the end of a takeover
attempt

• Standstill agreements often occur at the same time that a
targeted repurchase is arranged

• In a targeted repurchase, a firm buys a certain amount of its
own stock from an individual investor, usually at a substantial
premium

• These payments made to potential bidders to eliminate
unfriendly takeover attempts are referred to as greenmail

 Attractiveness

 Share Rights

Plans (SRP)

Poison Pills

 Stock Pricing

Share Rights

Plans (SRP)

 Golden

Parachute

 Poison Put

 Crown Jewel

 White Knight

 Lockup

Devices of

Corporate

Takeovers

 Shark Repellent

 Bear Hug

 Fair Price

Provision

 Dual Class

Capitalization

 Countertender

Offer

Devices of

Corporate

Takeovers

Summary of Takeover
Defenses

Merger Waves

and Merger

Profitability

Merger Waves and Merger
Profitability

• Who usually benefits from the merger?

• Shareholders of the target

• Lawyers and brokers

• The executives of the acquiring firm

• Who usually loses in a merger?

• Shareholders of the acquirer due to overpayment

• Executives of the target

• Employees due to restructuring

Lecture Outline

• Corporate Investment and Financing Decisions

• The Role of the Financial Manager and the
Opportunity Cost of Capital

• Goals of the Corporation

• Agency Problems and Corporate Governance

Mergers and

Acquisitions
Session 9