Merger & Acquisition Overview

These flashcards cover key terms and definitions related to mergers and acquisitions, important legislation, and concepts in corporate finance.

Merger & Acquisition (M&A)

A phenomenon where companies buy or merge with other companies, leading to increased transaction values over time.

Acquirer

The buyer of the firm in a merger or acquisition.

Target

The seller of the firm in a merger or acquisition.

Merger Waves

Periods of intense activity in the takeover market, marked by peaks of activity followed by quiet troughs.

Williams Act of 1968

U.S. legislation that regulates tender offers and aims to provide more information to shareholders during takeovers.

Tender Offer

An offer to buy the shares of a target company, typically at a premium over market value.

Mandatory Bid Rule

A requirement in European law that mandates equal treatment of shareholders during a takeover, requiring a buyer to make a tender offer for all shares upon reaching a specified ownership threshold.

Squeeze-out Rule

Allows a successful bidder to force minority shareholders to sell their shares, facilitating a delisting.

Agency Theory

A concept that describes the conflict of interest between shareholders (principals) and company executives (agents).

Hubris Hypothesis

The theory that managers' overconfidence can lead to overpaying for acquisitions.

Acquisition Premium

The percentage difference between the offer price of a target company and its pre-merger market price.

Horizontal Merger

A merger between companies operating in the same industry.

Vertical Merger

A merger between companies at different stages of the production process.

Conglomerate Merger

A merger between firms that operate in unrelated industries.

Cash Deal

A transaction in which the target shareholders receive cash for their shares.

Stock Deal

An arrangement where target shareholders exchange their shares for shares of the acquirer or a new merged firm.

Economies of Scale

Cost advantages obtained due to an increase in the scale of production.

Economies of Scope

Cost advantages that arise when a company increases the variety of goods produced.

Free Rider Problem

The issue where shareholders benefit from a takeover without tendering their shares, reducing the incentive for others to sell.

Material Adverse Change (MAC) Clause

A clause that allows a buyer to cancel a deal if significant negative changes occur in the target company.

Hostile Takeover

Occurs when an individual or organization acquires a large fraction of a company's stock without the consent of the target's board.

Proxy Fight

A tactic used in hostile takeovers to gain control of a company's board by persuading shareholders to vote for the acquirer's candidates.

Poison Pill

A defensive strategy that makes a takeover prohibitively expensive for an acquiring company.