BASIC rationale behind MERGER
The main motivation behind most mergers is to increase the value of the combined company. If companies A and B combining to form a C corporation, and if the value exceeds the value of C and A and B, if viewed in isolation, then the synergy that can be said to have occurred.
Tax considerations have prompted a number of mergers also occur. For example, a profitable company and is in the range of the highest taxes can acquire a company that has accumulated tax losses in large numbers. These tax losses can then be directly converted into a tax savings rather than taken to the next year and used in the next Maa. If the company has a lack of internal investment opportunities compared to free cash flow is available, then the company can (pay extra dividends, (2) invest in securities, (3) buying back its shares, or (4) buying other companies.
Purchasing Assets Under replacement cost
Sometimes the company will be viewed as acquisition candidates for the replacement cost of assets is much higher than its market value. For example, in the early 1980s, oil companies can buy back at lower prices through the purchase of other oil companies instead of doing exploratory drilling.
The managers often mentioned diversification as one reason for the merger. They argued that diversification would help stabilize the company's profit and consequently benefit the owners. Certainly benefit stabilization is beneficial for employees, suppliers and customers, but from the perspective of shareholders, stabilization is a less certain value.
Personal Incentive Manager
Financial economists like to argue that business decisions are based only on economic considerations alone, especially in terms of maximizing the value of a company. However, many business decisions are really based more on personal motivation than managers in economic analysis.
Personal Petimbangan will be blocked as well as to motivate the merger. After most of the takeover, some managers of the acquired companies losing their jobs, or at least their autonomy. Therefore, managers who have less than 51% shares of their companies try mencarai way that will minimize the chances of a takeover erjadinya. Such a defensive merger is very difficult to defend based on economic reasons.
The company can be judged from their book value, economic value, and replacement value. Recently, the takeover specialist company has begun to recognize nilain residue as one of the other basis for valuation.
TYPES OF MERGER
There are four types of merger:
1. Horizontal merger, occurs when a company merged with another company in the same line of business.
2. Vertical mergers, acquisitions form a company with one of the suppliers or customers.
3. Kongenerik merger will involve companies that are related but not a producer of a similar product or company that has a supplier-producer relationships.
4. Conglomerate merger, occurs when companies unrelated to join.
MERGER ACTIVITY LEVEL
Five "merger waves" have taken place in the United States. The first wave occurred in the late 1800s, when there is consolidation in the oil industry, steel, tobacco, and other basic industries. The second wave occurred in the 1920s, when rising stock market helped the promoters to consolidate finance companies in several industries, including public facilities, communication, and motor vehicles.
The third wave occurred in the 1960s, when conglomerate mergers happening everywhere. Fourth place in the 1980s, when the LBO firms and other companies began to use waste bonds to finance various types of acquisitions. The fifth wave, which is associated with a strategic alliance designed to enable companies to better compete in the global economy, still continuing to this day.
FORCED takeover VS friendly takeover
According to the existing convention, we refer to companies that want to acquire another company as pengakusisi companies and companies that want to acquire a target company.
After identifying potential acquirer company goals, then the company must (1) determine the price or the fair price range, and (2) to temporarily specify the payment terms, whether the company will offer cash, common stock, bonds, or a combination of both? If an agreement is reached, then both the management group would issue a statement to each shareholder who showed that they approved the merger, and the target company's management will give a recommendation to its shareholders that they have approved the merger. Typically, the shareholders will be asked to offering their shares to a financial institution who has been appointed, following a written authorization signed transferring ownership of these shares to the acquirer company. This is called friendly merger.
But often, the target company manajmen will reject the merger. They may feel that the price offered is too low or maybe they're trying to keep their jobs. Whatever the circumstances, the acquirer company's offerings are forced rather than friends.
Before the mid-1960s, in a friendly acquisition generally occurs in the form of a merger through a simple stock swap, and the seizure of the mandate is the main weapon used in war for control by force. However, the mid-1960s looters mulkai companies operate differently. First, through the seizure of the mandate would take a long time, these looters must first ask for a list of the target company's shareholders, was rejected, and then try to get a court order that forced the management handed over the list.
Then the raiders began to think that if we take the decision directly to the target quickly, before management had to take precautions, then it certainly will increase the chances of success. This then causes looters away from the seizure of the filing of the mandate of bidding, which have the response time is much shorter.
This is not fair to target companies that eventually Congress issued the Law Williams (Williams Act) in 1968. This regulation has two objectives: (1) regulate how the acquirer company can offer menstrukturisasi proposal, and (2) force the acquirer companies disclose more information about penwaran provided.
In theory, merger analysis is actually quite simple. Peusahaan acquirer only need to do an analysis to assess the target company and then determine whether the target company can be purchased at these values, or, preferably, lower than the estimated value.
ASSESSING THE TARGET COMPANY
In assessing the target company, there are several methodologies that can be used, however, we limit our discussion only on two methodologies: (1) terdiskonto cash flow approach, and (2) market multiples method.
- Cash Flow Analysis Terdiskonto
Terdiskonto cash flow approach in assessing a business will involve the application of budgeting procedures for capital or the whole enterprise rather than just one project only. To apply this method, there are two important things needed: (1) report that forecast pro forma free cash flow increased as a result of the merger, and (2) a discount rate, or cost of capital, which will be applied to cash flow projections.
The report pro forma cash flow. Getting a cash flow forecast is accurate so far pascamerger is an important task in the DCF approach. In a pure financial merger, which occurred an unexpected synergies, increase cash flow is actually pascamerger cash flow expectations from the target company. However, in the merger operation, where operating both companies will diintegerasikan, cash flow forecasting in the future is something that is more difficult.
Estimating the discount rate. The total amount is the net cash flow after interest and taxes, which will reflect the equity. Therefore, cash flow should be discounted by the cost of equity instead of the overall cost of capital. Furthermore, the discount rate used should reflect the risk level of cash flow in the table.
- Multiplication Market Analysis
The second method of assessing the target company is a market multiples analysis (multiple market analysis) is a method of evaluating a target company that uses multiplication which is determined by the market to net income, earnings per share, sales, book value, and so on.
Determining Price Offer
Method to determine the bid price is to see the highest amount that can be paid, which reflects the expected synergistic benefits of the merger, the following few things to note:
- If there are synergistic benefits, given the maximum bid will equal the current value of the company.
- The greater the synergistic benefits, the more likely the merger was implemented.
- The problem of dividing the synergistic benefits are also very important, both parties want a number as possible.
- The actual price will depend on several factors, including whether the company offers to pay in cash or securities, the negotiation skills of both management teams and most importantly, the position of offering both sides which is determined by underlying economic conditions of each company
- Companies will want to keep the maximum bid and bidding strategies companies plan carefully and consistent with the situation. The company can offer high anticipation, hoping to intimidate rivals or rejection of bid management.
Situsai control is vital in a merger analysis. First consider a situation in which a small company run by the owner sold to a larger interest.