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For undergraduate and graduate courses on Mergers and Acquisitions, or as a supplement for Business or Corporate Finance, Economics, or Strategy
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This book presents recent literature on corporate mergers, acquisitions, takeovers, restructuring, and corporate governance as well as discussions of valuation, cost of capital, and strategic financial planning. This book discusses how M&As fit into a company's long-term strategy and how restructuring can unlock values in a company. It presents strategies designed to increase a firm's value: i.e., joint ventures, ESOPs, LBOs, share repurchases, and international strategies. The book also provides guides on selecting M&As to strengthen a company or increase its value. The second edition of Takeovers, Restructuring and Corporate Governance has been revised to include the latest empirical data and literature. It also now includes 38 important recent case studies: i.e., QVC-Paramount; Boeing-McDonnell Douglas; Ciba-Geigy-Sandoz, Disney-Cap Cities-ABC, and Time Warner-Turner. An essential reference book for any corporate officer, investor, or legislator whose interests or responsibilities include corporate mergers or restructuring.Excerpt. © Reprinted by permission. All rights reserved.:
M&As IN THE NEW ECONOMY
Takeovers, restructuring, and corporate governance activities continue to accelerate. New industries like e-commerce and biotechnology have been exploding; old industries are being transformed. The New Economy has been characterized by interactions between the "new economy" firms and the "old economy" firms. The announcement of the merger between America Online and Time Warner in January 2000 quickly followed by Time Warner's proposal to acquire the music business of the EMI Group was appropriate symbolism for the new millennium. It combined new economy and old economy firms in an international setting. But other equally significant industry transformations have been taking place. Telecommunications and media firms are converging. Computers and the Internet industries are characterized by explosive growth in multiple segments with some firms achieving competitive advantage while competitive thrusts continue to challenge.
Powerful change forces have been driving the increased M&A activity. Foremost is technological change, impacting every industry. Changes in transportation and communications have produced the internationalization of markets. The globalization of competition and its increased intensity have produced deregulation in airlines, financial services, telecommunications, and even the traditional electrical and other public utilities industries. But the massive change forces have also impacted the pharmaceutical, chemical, auto, tire, and petroleum industries as well as those described above. Business firms will need to continue to adjust to the strong change forces. The ways of doing business will continue to change. The forms of competition will continue to multiply and its intensity will continue to increase. Relations with suppliers, workers, consumers, and other stakeholders will continue to evolve. These forces are not likely to diminish in the years ahead. The M&A subject, therefore, will continue to grow in importance.
Dramatic events in mergers, takeovers, restructuring, and corporate control fill the newspaper headlines almost daily. Mergers, takeovers, restructuring, and corporate control issues have become central public and corporate policy issues. To some, M&As, restructuring, and corporate control activities represent a new industrial force that will lead the United States and other economies that practice these arts to new heights of creativity and productivity. To others, these same activities are regarded as a blight on our economy—a symptom of the larger malaise evidenced by greed and gambling that is rotting the core of American society. M&As are increasingly used in China to attempt to improve the performance of the state-owned enterprises. Regardless of which view is held, M8cAs, restructuring, and corporate control represent major forces in the modern financial and economic environments. These are areas with potential for both good and harm.
Merger and acquisition activity has continued to stimulate a veritable deluge of published materials. Compact summaries of these materials or synthesis articles cannot cover the material adequately. In this book we seek to provide a more complete treatment of the leading topics related to mergers, takeovers, restructuring, and corporate control. In the future, shifts in the levels of these activities may occur with fluctuations in the economy and with changing regulatory environments. However, takeovers, restructuring, and leveraged buyouts will continue to be major forces in the economy. Additionally, some key topics such as valuation, cost of capital, and strategic financial planning—essential to the subject of financial economics—enter into the analysis of takeovers and restructuring. Therefore, important analytical concepts must be mastered.
POINT OF VIEW
We try to be objective in our analysis of M&A activity. We see some positive benefits from increased emphasis on financial strategy and restructuring. Undoubtedly, there have been excesses such as typically occur in exploding markets. We have to separate the good from the bad. We come not to praise, criticize, or condemn but to increase understanding. Our central aim is to provide a conceptual framework that will help the reader put into perspective events that are headlined almost daily in the financial and general press and increase his or her understanding of them.
The main audience we have in mind is the academic user. Increasingly, M8cA courses deal with all or part of the subject matter of this book. For that reason, we have included end-of-chapter questions to stimulate discussion and to emphasize the key subject matter. We have also kept in mind two other audiences—business-people and the general public, including legislators and other policy makers. We have tried to keep the level of treatment accessible by avoiding excessive jargon. We have tried to develop the technical materials from the ground up so that both the academic reader and the general reader will be able to master the material and, we hope, experience intellectual growth in the process.
What we think will be of value to academics and businesspeople is the ability to answer natural and practical questions that arise. For the bidding firm, how much will my early investment in the target increase in value if I use cash as a method of payment? What if I use stock? For the target, what is a reasonable premium for me to expect from a bidder? How much will my firm increase in value if I engage in a sell-off or divestiture? What will be the effect on a firm's share price on average if it engages in stock repurchase? What will be the impact on my firm's share price if it makes a stock or debt issue? What will the share price effect be if a proxy contest is started? What will be the effect of paying greenmail? What value changes take place with going private, particularly through a leveraged buyout? If my firm establishes two classes of stock, which one will have the greater value—the one that pays more income, or the one that has more voting power?
There is a rich body of conceptual and empirical material that can provide a basis for answering such questions. This book attempts to bring that material together in a systematic way. At the same time it tries to lay bare the theory or principles and the logical analysis that give meaning to the empirical findings. These and related materials will provide the general reader with a basis for understanding and judgment about the flow of proposals to alter public policy toward M&As and corporate restructuring that are introduced into every session of Congress.
CHANGES IN THE THIRD EDITION
We have updated the text with new empirical data and literature citations. In some cases we have summarized groups of articles into their main findings. In other cases, where individual articles develop their own distinct new findings, we discuss them individually. We have striven to tighten the conceptual framework that provides perspective on groups of articles in individual subject areas.
We have streamlined the valuation material, orienting it more fully to M8cA decisions and case studies, by introducing many more cases in the text and as end-of-chapter exercises. We plan to continue to do more along these lines in the Study Guide to Takeovers, Restructuring, and Corporate Governance and in future editions.
In this third edition, at least 50 percent of the material is new or rewritten. We have class-tested the manuscript with gratifying results. Students have requested permission to make copies for friends who are doing corporate internships before taking their M&A course. Students and practitioners have told us that reading the materials has improved the breadth and maturity of their understanding of the M&A field.
This book applies materials from business finance and financial economics, business economics, strategy, accounting, and law. It demonstrates the application of a wide range of concepts from diverse fields. A framework for performing M&A analysis is provided. Many applications are developed through case studies and examples. The book helps develop the intellectual maturity for sound judgments on M&A analysis and decisions.
An important companion piece to this text is the related Study Guide to Takeovers, Restructuring, and Corporate Governance. Our Study Guide contains outlines that provide an overview of the subject matter of each chapter and illustrative problems and solutions that seek to help the student understand how to apply the main ideas contained in the book itself. The main goal of the Study Guide is to help students develop a conceptual framework for analyzing the subject matter of the M&A field.
A comprehensive Instructor's Manual contains six parts: suggestions for teaching the M&A course; solutions to end-of-chapter questions and cases; true-false questions for each chapter; illustrative examinations; and sample material of our PowerPoint Presentation Graphics.
We have also developed a softcover compilation of Cases on Takeovers, Restructuring, and Corporate Governance. This provides coverage of a wide range of cases, especially the most recent blockbusters.
We also supply a disk in which we have formulated key analytical models contained in our book. These computer models enable the user of the book to study a wide range of alternative concepts, assumptions, or company characteristics.
We are grateful to the following people for their helpful comments on the first edition: Nickolaos Travlos, Boston College; Michael J. Sullivan, Florida State University; Kenneth W. Wiles, University of Texas at Austin; George J. Papaioannou, Hofstra University; Douglas V. Austin, University of Toledo; Maclyn L. Clouse, University of Denver; Matthew Spiegel and Michael Salinger, Columbia University; Nikhil P. Varaiya, Southern Methodist University; Robert F. Bruner, University of Virginia; and Ralph A. Walkling, Ohio State University.
For help on the second edition, we thank Michael F. Toyne, La Salle University; Kent Hickman, Gonzaga University; and Yun W. Park, Saint Mary's University.
For contributions to the third edition, we thank Mark Mitchell, Harvard University; J. Harold Mulherin, Penn State University; Ted Azami, Cal State at Long Beach; Theodore Peridis, York University; Mark Shrader, Gonzaga University; David Ikenberry, Rice University; and R.M. Karanjia, University of Notre Dame.
We extend our appreciation also to the many scholars whose writings have enriched the literature on M&As and corporate control. They are listed in the Author Index, and those with multiple citations deserve our special gratitude. We were also helped by scholars whose writings and discussions have stimulated our thinking: Armen Alchian, Edward Altman, Antonio Bernardo, Michael Brennan, Bhagwan Chowdhry, Bradford Cornell, Harry DeAngelo, .Jack Farrell, Julian Franks, David Hirshleifer, Patricia Hughes, John Matsusaka, Jeff Pontiff, Richard Roll, Eduardo Schwartz, James Seward, Walt Torous, and No Welch. Particular thanks to Kwang S. Chung, our coauthor on the first edition, and to Matthias Kahl for his corrections and many penetrating comments.
We received assistance from associates in our M&A Research Program at The Anderson School at UCLA. They include Vickie Ho, Miriam Jin, Elizabeth Kwon, Nicole Madani, Shirley Ng, and Stacie Papp.
This book memorializes Marilyn McElroy, who was our associate for 28 years.
We appreciate the complete cooperation of the people at Prentice Hall, particularly Maureen Riopelle, Senior Finance Editor, and her associates, Cheryl Clayton, Holly Brown, and Gladys Soto.
This subject is so dynamic and the flow of articles and other materials is so voluminous that there will be a need for future updating. We invite reactions, comments, and suggestions from our readers.
J. Fred Weston
Juan A. Siu
Brian A. Johnson
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