Principles of Managerial Finance, 15th Edition

18.3 Analyzing and Negotiating Mergers

1. LG3

2. LG4

Initially, we will consider how to value the target company and how to use stock swap transactions to acquire companies. Next, we will look at the merger negotiation process. We will then review the major advantages and disadvantages of holding companies. Finally, we will discuss international mergers.

Valuing The Target Company

Once the acquiring company isolates a target company it wishes to acquire, it must estimate the target’s value. The acquirer uses that value, along with a proposed financing scheme, to negotiate the transaction, be it on a friendly basis or a hostile basis. The value of the target is estimated by using the valuation techniques presented in Chapter 7 and applied to long-term ...