İŞLETME FİNANSI II - Deneme Sınavı - 3

Divestiture is a sale of all of a company or all of a business/product line to another party in exchange for cash or securities.

Vertical M&A is a form of a business combination between two firms of which one them is a supplier or a customer to another. Company B is a supplier to Company A. 

Conglomerate M&A is a form of a business combination between two unrelated firms in different industries such a Fintech startup and  a petroleum refining company.

Anergy refers to a condition of joining two separate firms producing an outcome that is less than the sum of separate entities.

DePamphilis’s List of Key Topics to Address in a Due Diligence:

1. Corporate matters
- Affiliates, strategic investments, company documents, agreements, press releases, etc.
2. Securities matters
- Number of shares, issuance/resale of equity/debt securities, reports to shareholders, etc.
3. Tax matters
- Income tax returns, foreign income tax returns, evidence of payment of taxes, tax audits, etc.
4. Financial and accounting matters
- Financial statements, listing of inventory, listed of accrued expenses and deferred revenue, sales
and cost of sales, etc.
5. Risk management matters
- Liability and property insurances, risk management policies, claims, customer warranties, etc.
6. Assets, real property, and personal property matters
- Domestic and foreign facilities owned, restrictions on real properties, documents on ownership/use
of real properties, intangible properties, etc.
7. Conduct of business matters
- Company’s business units’ products and services, sales by product line, largest customers and
suppliers, principal competitors, etc.
8. Intellectual property matters
- Domestic and foreign patents and trademarks, copyrights, pending applications to those, etc.
9. Management, labor, and personnel matters
- Management organization, employees by business units, employment agreements, collective
bargaining agreements, pension plans, personnel procedures, etc.
10. Legal compliance matters
- Legal and ethical conducts, prior circumstances of recorded payments, prior investigations if any,
policies of environmental, safety, and health issues, etc.
11. Ligitation, disputes, and claims matters
- Pending ligitations and claims, any governmental authority against the company, any violation of
any regulations, etc.
12. Information systems matters
- Information processing systems, staffing forecasts, software products utilized, etc

In isolation style, the acquirer company keeps the acquired company at a distance. Speed of change in the acquired company’s management is rapid because of the poor financial state. Organizational configuration is dissolved rather than retained, and the need to integrate capabilities for synergy is low.

In maintenance style, generally the acquired company is a well-performing company in a different business. The acquirer company tries to retain the acquired company’s organizational configuration because the business area of the acquired company is different. Therefore, the acquirer company tries to learn from the experiences of the acquired. The speed of change has to be slow, and the capability interaction is low for a long period of time.

In subjugation style, acquired and the acquirer companies are usually in the same industry. The acquirer company makes rapid changes in the organization of the acquired company. Executives are changed, and the identity is dissolved. That means, the acquired company’s configuration is dissolved, and the need for integrating in order to benefit from synergy is high. Synergy is generally expected in terms of economies of scale and economies of scope.

In collaboration style, the acquired company usually is in a good shape, and valuable for the acquirer. At the same time, long run capability interaction is important for the acquirer. So, the acquired firm's organizational configuration is retained, the need for integrating in order to benefit from synergy is high. However, speed of integration between the acquirer and the acquired is slow rather than rapid.

Scholars assess the performance of mergers and acquisitions with several different approaches. In
The Handbook of M&As (2011), these approaches are classified as i) short-term financial performance, ii) accounting-based performance, iii) longterm financial performance, iv) key informants’ retrospective assessments of performance, v) divestiture performance, vi) integration process performance, vii) innovation performance.

Leveraged buyout (LBO) refers to purchase of the target company by using debt as a financing alternative.

Acquisition premium is the price paid for a target firm that exceeds its pre-acquisition market value.

Net asset value is the value of assets minus value of liabilities of a firm. Book value is the value of assets that are recorded at a date, at a value, by accounting records.

Value of Compan A =  (5600/1.12)+(7200/[(1.12)^2])+(40200/[(1.12)^3]) 
                            = $39,353

The main business risk for a multinational corporation is foreign exchange
rate risk.

A licensing agreement gives a firm in a host country the right to produce and sell a product for a specified period in return for a fee.

IJV involves a much higher level of investment and therefore of risk than the other entry strategies mentioned.

More than 60% of the reserves held by the world´s central banks are denominated in USD.

The world’s major banks, and other financial institutions make up the interbank market that act as the wholesale part ofthe forex market where banks manage inventories of currencies.

Economic risk reflects basically the risk to the firm’s present value of future operatingcash flows from exchange rate movements. In essence, economic risk concerns the effect of exchange rate changes on revenues (domestic sales and exports) and operating expenses (cost of domestic inputs and imports).

A forex swap transaction (swap) is a combination of a spot transaction and a forward transaction. A swap is the simultaneous purchase and sale of identical amounts of one currency for another at a later date.

The risk management strategy that is used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies or securities is referred to as hedging.

Eurobond market is an offshore market where borrowers and lenders meet because of its lower costs and lack of regulation. It is just one segment of the so-called Euromarket, which also includes Euro currency, Euro notes, Euro commercial paper, and Euro equity markets. Euro markets are offshore capital markets, in the sense that the currency of denomination is not the official currency of the country where the transaction takes place.

The credit rating which gives an indication about the risk level associated with investing in a particular country is called soverign credit rating.