Merger and Acquisition Strategies
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Merger and Acquisition Strategies How to Create Value

How to Create Value

  • New Perspectives on the Modern Corporation series

Angelo Dringoli

The decision to carry out a merger or acquisition is certainly a risky one, not least because of the number of variables influencing the final outcome. It is also a decision frequently based on the wrong objectives and an incorrect evaluation process. With this in mind, this important new book offers solutions for reducing the high percentage of mergers and acquisitions (M & As) that fail. It adopts a normative approach, using theoretical analysis to show what managers could and should do to increase shareholders’ value through successful M & A strategies. It also explores the conditions that are suitable for favouring a certain type of M & A (horizontal, vertical or diversified) over the others. In conclusion, the book presents case studies of successful M & A strategies providing a link between theory and practice.
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Chapter 8: Financing M & As and effects on merger value

Angelo Dringoli

Extract

In M & A operations the form of payment of the target firm is crucial for the success of the merger. This chapter examines the main alternatives of payment: by cash and by new stocks issued by the acquiring firm. The payment by new shares requires the exchange ratio between the shares of the acquiring firm and those of the target firm to be determined. The analysis indicates how to calculate the maximum exchange ratio the shareholders of the acquiring firm can pay without destroying value, and the minimum exchange ratio that makes the merger neutral for the shareholders of the target firm.

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