Financial Management

Merger and Acquisition

Firli Dwisalma Devria (29118327)

Reynaldy Prayogi (29118362)
Ayu Regita Cahyani S (29118397)
Ezra Hizkia Nathanael (29118410)
Naufal Mohammad E.P. (29118421)
Growth Strategy
 TERMINOLOGY
01 MERGER

02 CONSOLIDATION

03 HOLDING COMPANY & SUBSIDIARIES

04 ACQUIRING & TARGET COMPANY

05 FRIENDLY & HOSTILE TAKEOVERS

06 STRATEGIC & FINANCIAL MERGERS

WHY SHOULD MERGER?

Growth or Fund Raising Tax Consideration Defense Against

Diversification Takeover

Synergy Increase Managerial Increase Ownership

Skill or Technology Liquidity
Tax Loss
Carryforward

Bergen Company, has a total of $450,000 in

tax loss carryforward.
Hudson Company, has acquired Bergen
through a merger.
Hudson expects to have before tax earnings
of $300,000 per year.
Tax : 40%
Mergers and Acquisition Process
Types of Merger

Horizontal Vertical Congeneric Conglomerate

Example of Merger

EXXON
Mobil

Horizontal Merger

AT&T
TimeWarner

Vertical Merger
 TheTravelers
CITIBANK
citigroup
Congeneric Merger

Disney
abc

Conglomerate
LBOS AND DIVESTITURES
Leverage Buyouts (LBOs) is
an acquisition technique
involving the use of a large amount of debt
to purchase a firm.

The selling of some of a firm's assets

for various strategic reasons
is called divestiture.

Sometimes divestiture is achieved

through a spin-off.
Analyzing and Negotation Mergers
 Valuing the Target Company
 Acquisitions of Assets
 Acquisitions of Going Concerns
 Stock Swap Transaction
 Ratio of Exchange
 Effect on Earnings per Share
 Effect on Market Price per Share
 Merger Negotiation Process
 Management NEgotiations
 Tender Offers
 FIghting Hostile Takeovers
 Holding Companies
 Advantages of Holding Companies
 Disadvantages of Holding Companies
 International Mergers
 Changes in Western Europe
 Foreign Takeovers of U.S. Companies
ACQUISITION OF ASSETS
ACQUISITION OF GOING CONCERN
EFFECT ON EPS
EFFECT ON EPS
EFFECT ON MARKET PRICE PER SHARE

The ratio of exchange in market price indicates the

market price per share of the acquiring firm paid for each doll
ar of market price per share of the target firm.

where
MPR = market price ratio of exchange
MPacquiring = market price per share of the acquiring firm
MPtarget = market price per share of the target firm
RE = ratio of exchange
Case Study – Darden
Business Publishing,
University of Virginia
GE’s Proposed Acquisitions of Honeywell
Honeywell’s DCF Valuation and Valuation Summary

(values in millions of USD, except per-share amounts)

Financial Data for Comparable Firms
(values in millions of USD, except per-share amounts, beta, and multiples)
Historical Stock Performance
Analysis of M&A Motives
in
Indonesian Listed Companies
through
Financial Performance Perspective
Tarigan, et al., KINERJA Volume 22, No. 1, 2018,
Page. 95-112
Factor Resulting in Shareholder Gains

Growth

Tax Motive Synergy

Factors
Improved
Diversification
Management

Vertical Horizontal
Integration Integration
 Factor Affecting the
Success and Failure of M&A
Size Issues

Failure of
Leadership Diversification
Role

Factors
Poorly Poor
Managed
Integration Cultural Fit

Incomplete
and Poor
Inadequate Strategic Fit
Due Diligence
Five Common Performance Evaluation
Approaches in M&A Field
Event Studies

Accounting-
Divesture based
Measures

Method

Expert Manager’s
Informants’ Perceived
Assessment Performance
Important Accounting Measurement
Liquidity Ratio
– Current ratio
Profitability Ratio
– Total asset turnover (TATO)
– Net profit margin (NPM)
– Return on assets (ROA)
– Return on equity (ROE)
– Earnings per share (EPS)
Solvency Ratio
Market Measurement (Tobin’s Q)
Lesson Learned

• Need to have as much information as possible regarding the target firm

as well as the industry market before conducting M&A
• Most of the time, M&A will yield good result in short-term
but will decrease over time
• M&A is quite influenced by the culture and
the market will behave as a reaction toward an M&A initiative
Thank You!