CHAPTER 7 Mergers & Acquisitions. In the 1980s, hostile takeovers and LBO acquisitions were all the rage. Companies sought to acquire others through aggressive stock purchases and cared little about the target company’s concerns. The 1990s were the decade of friendly mergers, dominated by a few sectors of the economy. | M A Private Placements and Reorgs CHAPTER 7 Mergers Acquisitions In the 1980s hostile takeovers and LBO acquisitions were all the rage. Companies sought to acquire others through aggressive stock purchases and cared little about the target company s concerns. The 1990s were the decade of friendly mergers dominated by a few sectors of the economy. Mergers in the telecommunications financial services and technology industries were commanding headlines as these sectors went through dramatic change both regulatory and financial. But giant mergers were occurring in virtually every industry witness one of the biggest of them all the merger between Exxon and Mobil . Except for short periods of market volatility M A mergers and acquisitions business was brisk in the 1990s as demands to go global to keep pace with the competition and to expand earnings by any possible means were foremost in the minds of CEOs. At the beginning of the millenium however the M A slowed. In 2002 the hit bottom decreasing in total volume by 40 percent. But in 2003 M A made a comeback as worldwide volume climbed 14 percent versus 2002. When a public company acquires another public company the target company s stock often rises while the acquiring company s stock often declines. Why One must realize that existing shareholders must be convinced to sell their stock. Few shareholders are willing to sell their stock to an acquirer without first being paid a premium on the current stock price. In addition shareholders must also capture a takeover premium to relinquish control over the stock. The large shareholders of the target company typically demand such an extraction. Usually once a takeover is announced the arbs or arbitragers buy up shares on the open market and drive up the share price to near the proposed takeover price. M A transactions can be roughly divided into either mergers or acquisitions. These terms are often used interchangeably in the press and the actual legal difference between the
