İŞLETME FİNANSI II

Acquisition is taking a controlling ownership in another firm, subsidiary of another firm, or business unit of another firm by an acquirer firm. The acquired firm may continue its existence after the acquisition as a subsidiary of the acquirer. In the opposite position, a 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. That means that for an acquired firm, the transaction is a divestiture, while for an acquirer it is an acquisition. The correct answer is B.

Equity partnership: A company’s purchase of stock (resulting in a less than controlling interest) in another company or a two-way exchange of stock by the two companies. An equity interest in a partnership is generally accounted for by each partner in the same manner as an equity investment in a corporation, provided that recourse for partnership liabilities is limited to partnership assets (Finnerty, 2007). The correct answer is B.

Offshoring: The moving of various operations of a company to another country for reasons such as lower labor costs or more favorable economic conditions in that other country. The correct answer is B.

Outsourcing: The contracting or subcontracting of noncore activities to free up cash, personnel, time, and facilities for activities in which a company holds competitive advantage. Companies having strengths in other areas may contract out data processing, legal, manufacturing, marketing, payroll accounting, or other aspects of their businesses to concentrate on what they do best and thus reduce average unit cost. The correct answer is C.

Franchising Alliance: A kind of alliance where a privilege given to a dealer by a manufacturer or franchise service organization to sell the franchiser’s products or services in a given area, with or without exclusivity. Such an alliance can be formed by using a franchise agreement, which may include franchisers’ consultation, assistance, and financing. Franchise is a kind of licensing agreement, which is specialized in selling another firm’s products or services (DePamphilis, 2003). Yhe correct answer is C.

Conglomerate M&A is a form of business combination between two unrelated firms in different industries. The correct answer is E.

Vertical M&A is a form of business combination between two firms of which one them is a supplier, or a customer to another. The correct answer is A.

Cross-border M&A is a form of business combination between two firms in two different countries. The correct answer is A.

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. The correct answer is D.

The activities of firms that expand/downsize their core business operations, or significantly change their assets and financial structure are called as corporate restructuring activities. Such operational restructuring decisions include various forms of combining business activities like mergers, acquisitions, and other business alliances as well as different forms of exiting strategies.

For both mergers and acquisitions, the company that is to be targeted for such a transaction is called “target firm”. After the transaction made, these firms can be called “acquired firm”. On the other hand, the company that is to pay premium to hareholders  if target firm in exchange of shares is called “acquirer firm” or “acquiring firm”.

Merger is a combination of two firms in a way that only one firm survives after combining. Merger can be in three ways. If the acquirer firm assumes the assets and liabilities of the target firm, then it is a statutory merger. If the target firm becomes a subsidiary of the acquired, then it is a subsidiary merger.

Acquisition is taking a controlling ownership in another firm, subsidiary of another firm, or business unit of another firm by an acquirer firm. The acquired firm may continue its existence after the acquisition as a subsidiary of the acquirer. In the opposite position, a 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.

Benefits from economies of scope stem from combining the business with suppliers or customers. Benefits are the outcomes of vertical integration.

Negotiation in M&A activity refers to the process of bargaining between the acquiring firm and the target firm aimed at coming to an agreement over the terms, needs and aims of both parties. If the acquiring company’s intention is to continue with the management of the target company after the acquisition, the heart of the negotiation first will be the integration of business activities and management after the closing. Price will be the second theme of the negotiation if both parties have an agreement on the first theme.

Culture clash is a widely used term to describe the failure of management in the post acquisition integration process. Bringing two different sets of fundamental values of employees in all levels and fuctions together in a context of achieving business goals can create problems. This can lead to “very damaging actions from passive resistance and the loss of good staff to sabotage”

If the acquirer company finances the M&A deal by largely using debt it is called as Leveraged Buyout (LBO). Sometimes debtfinancing may be up to 90% for a deal. Typically, the target company’s assets are used as a warranty
for the loan.

Income-based valuation focuses on finding the fair value of the company, depending on the future cash flows. The key of income-based valuation is future cash flows that a company will generate. The value of a company then, is the sum of present value of its future net cash flows. Calculation of future cash flows is not an easy task, though. It includes long-term business plans, growth plans, and risks associated with future cash flows.

Price to cash flow ratio analyses relationship between cash flows and market price. This approach suggests using cash flows instead of earnings because companies may use different depreciation techniques. Cash flow is calculated as net income plus depreciation.

Merger is a combination of two firms in a way that only one firm survives after combining. Merger can be in three ways. If the acquirer firm assumes the assets and liabilities of the target firm, then it is a statutory merger. If the target firm becomes a subsidiary of the acquired, then it is a subsidiary merger. The correct answer is E.