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CHAPTER 1 

MERGERS AND ACQUISITIONS 

LEARNING OBJECTIVES: 

After studying this chapter you will be able to:

1. Define mergers. 

2. List twelve conditions required to merge. 

3. Define and perform due diligence. 

4. Identify information to consider before "doing a deal” 

5. Describe antitrust guidelines 

6. Explain M & A percent rules. 

7. Plan for mergers and acquisitions. 

8. Decide on acquisition terms. 

9. List factors in determining a price. 

10. Describe grading criteria. 

11. Summarize acquisition strategy and process. 

12. Finance the merger. 

13. Use capital budgeting techniques for M&A analysis. 

14. Explain the effect of merger on earnings per share and Market price per share. 

15. Describe the risk of the acquisition. 

16. Explain the methods of hostile takeover bids. 

17. Outline SEC filing requirements and tax considerations 

18. Enumerate defensive measures by targeted company. 

19. Determine the value of a targeted company. 

20. Describe accounting, reporting and disclosures for business combinations 

21. Discuss the importance of corporate development officers (CDOs)—M&A teams 

For years, academic studies maintained mergers and acquisition (M&A) deals destroyed 

shareholder value. In 2006, however, businesses around the globe bought (and therefore sold) 

more companies for more money than ever. It was not just a year of record merger volume - 

more than $3,800 billions - but also a merger market with unprecedented breadth, across 

geographies and industries. M&A transactions in the current merger cycle differ in significant 

ways from those of the 1990s, and this probably explains why so much value has recently been 

created. Specifically, this current merger boom is characterized by 

• Horizontal consolidation with significant potential for cost synergies. 

• The use by acquirers of existing cash and borrowed money (after-tax cost) to 

purchase the (relatively higher cost) equity of acquired companies. 

• Much lower acquisition premiums being initially paid. 

Mergers and acquisitions can result in new organizations whose financial and strategic 

options are much improved. They are driven by globalization, a long-term market, various 

barriers to growth, which make M&As a valuable tool by which companies can quickly attempt 

to increase revenue.