Über die Autorin bzw. den Autor

H. Kent Baker, PhD, CFA, CMA, is University Professor of Finance and Kogod Research Professor at the Kogod School of Business at American University, Washington, D.C. He has published extensively in leading academic and professional finance journals including the Journal of Finance, Journal of Financial and Quantitative Analysis, Financial Management, Financial Analysts Journal, and Journal of Portfolio Management. He has also published more than a dozen books including several corporate finance textbooks. Recognized as one of the most prolific authors in finance during the past 50 years, Professor Baker has consulting and training experience with more than 100 organizations.

Halil Kiymaz is Bank of America Chair and Professor of Finance at the Crummer Graduate School of Business at Rollins College. He holds the Chartered Financial Analyst (CFA) designation and has served as a grader for the CFA Institute. Professor Kiymaz maintains an extensive research agenda focusing on everything from international M&As to the financial management of multinationals, and has published more than 50 articles in scholarly and practitioner journals. He is the recipient of several research awards, including the McGraw-Hill Irwin Best Paper Award and Outstanding Research Award at the Global Conference on Business and Finance.

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Mergers and acquisitions represent a vital business tool as well as an alternative growth and expansion strategy for many companies. Given the frequency of these transactions, understanding how and why they take place is essential to realizing the expected benefits of such activities and ensuring the critical goal of maximizing shareholder value.

The Art of Capital Restructuring, part of the Robert W. Kolb Series in Finance, provides a fresh look at the current state of mergers, acquisitions, and corporate restructuring in both developed and emerging markets. Filled with in-depth insights and practical advice, this reliable resource contains detailed discussions of several different forms of physical restructuring such as divestitures as well as capital restructuring. Along the way, it also explains the financial aspects of these transactions and clearly addresses the legal, regulatory, tax, ethical, social, and behavioral issues associated with them.

Divided into six comprehensive parts, with contributed chapters from leading academics and practitioners from around the world, The Art of Capital Restructuring includes the latest M&A-related research, with coverage extending from basic concepts, motives, strategies, and valuation techniques to their application to increasingly complex, real-world situations. Chapter by chapter, it explains these methods from both a management and investor perspective while emphasizing the wealth effects they have on shareholders.

Engaging and informative, The Art of Capital Restructuring distinguishes itself in many ways from other books on this topic. Blending recent theoretical developments with the results of relevant research studies and actual M&A examples, it skillfully:

• Examines best practices that lead to M&A success, including valuing the target, negotiating and financing the deal, and engaging in post-acquisition planning and integration

• Reveals research dealing with both foreign and domestic firms, detailing the cross-border effects involving developed and emerging markets

• Details both the technical and human aspects of M&As, from valuation issues to corporate governance and cultural due diligence

• Outlines different M&A takeover and defensive takeover strategies

• And much more

As markets become more integrated, the debate about the long- and short-term performance of M&As continues to intensify. The Art of Capital Restructuring will help you gain a firm understanding of both the art and science of this discipline and put you in a better position to continue to create shareholder value in the process.

Aus dem Klappentext

Mergers and acquisitions represent a vital business tool as well as an alternative growth and expansion strategy for many companies. Given the frequency of these transactions, understanding how and why they take place is essential to realizing the expected benefits of such activities and ensuring the critical goal of maximizing shareholder value.

The Art of Capital Restructuring, part of the Robert W. Kolb Series in Finance, provides a fresh look at the current state of mergers, acquisitions, and corporate restructuring in both developed and emerging markets. Filled with in-depth insights and practical advice, this reliable resource contains detailed discussions of several different forms of physical restructuring such as divestitures as well as capital restructuring. Along the way, it also explains the financial aspects of these transactions and clearly addresses the legal, regulatory, tax, ethical, social, and behavioral issues associated with them.

Divided into six comprehensive parts, with contributed chapters from leading academics and practitioners from around the world, The Art of Capital Restructuring includes the latest M&A-related research, with coverage extending from basic concepts, motives, strategies, and valuation techniques to their application to increasingly complex, real-world situations. Chapter by chapter, it explains these methods from both a management and investor perspective while emphasizing the wealth effects they have on shareholders.

Engaging and informative, The Art of Capital Restructuring distinguishes itself in many ways from other books on this topic. Blending recent theoretical developments with the results of relevant research studies and actual M&A examples, it skillfully:

• Examines best practices that lead to M&A success, including valuing the target, negotiating and financing the deal, and engaging in post-acquisition planning and integration

• Reveals research dealing with both foreign and domestic firms, detailing the cross-border effects involving developed and emerging markets

• Details both the technical and human aspects of M&As, from valuation issues to corporate governance and cultural due diligence

• Outlines different M&A takeover and defensive takeover strategies

• And much more

As markets become more integrated, the debate about the long- and short-term performance of M&As continues to intensify. The Art of Capital Restructuring will help you gain a firm understanding of both the art and science of this discipline and put you in a better position to continue to create shareholder value in the process.

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The Art of Capital Restructuring

John Wiley & Sons

Chapter One

H. KENT BAKER University Professor of Finance and Kogod Research Professor, American University

HALIL KIYMAZ Bank of America Chair and Professor of Finance, Rollins College

INTRODUCTION

An important question in finance is whether managerial actions create market value or shareholder wealth. Neoclassical economic theory assumes that corporate management acts to maximize shareholder wealth. Studies involving mergers and acquisitions (M&As) directly examine this issue. Such studies, which are relevant to shareholders, managers, regulators, and other stakeholders, show considerable variation in their results. Thus, debate continues about both the short-term and long-term performance of M&As. As markets become more integrated, M&As continue to be a hot topic in both academia and the business world. Given the frequency of these activities, businesspeople need to understand why and how such activities take place.

Although sometimes used interchangeably or synonymously, the terms merger and acquisition mean slightly different things. A merger is a combination of two or more companies in which one company survives and the merged company goes out of existence. Unlike a merger, a consolidation is a business combination in which two or more companies join to form an entirely new firm. With an acquisition, one company takes controlling ownership interest in another firm, typically buying the selected assets or shares of the target company. On the surface, the distinction in meaning may not seem to matter because all of them are strategic transactions that usually change not only the control of a company but also its strategic direction. Depending on the transaction, the financial, legal, tax, and even cultural impact of a deal may differ substantially.

M&As represent a fast-paced and highly complex environment in which transactions provide unique opportunities with considerable risk. Worldwide M&A transactions involve trillions of dollars that can have a major impact on both domestic and global economies. M&As are a vital part of any healthy economy because they force firms to use their resources efficiently and allow strong companies to grow and weaker companies to be swallowed. Further, M&As enable firms to achieve or maintain their competitive advantage by anticipating and adjusting to change. Through M&As a company can grow rapidly without having to create another business entity. Consequently, M&As represent a vital business tool and an alternative growth and expansion strategy for many companies. In short, an M&A is an instrument of macroeconomic renewal. Yet, these complex transactions are laden with potential problems and pitfalls. In fact, many M&A transactions fail to realize expected benefits. Understanding how to ensure the successful consummation of these transactions is critical to the goal of maximizing shareholder wealth.

PURPOSE OF THE BOOK

This book provides a fresh look at the current state of mergers, acquisitions, and corporate restructuring in both developed and emerging markets. Although M&As generally focus on corporate expansion, companies sometimes contract and downsize their operations. Restructuring refers to the act of partially dismantling or otherwise reorganizing a company for the purpose of making it more profitable. This book considers several different forms of physical restructuring such as divestitures as well as capital restructuring, which refers to alterations in the capital structure of the firm. This volume explains not only the financial aspects of these transactions but also legal, regulatory, tax, ethical, social, and behavioral considerations. In short, although economics plays an essential role in understanding M&A activity, psychology also plays a critical part. Thus, achieving "success" in any M&A effort is a combination of both art and science.

Additionally, the latest research on M&A-related topics permeates the book. The coverage extends from discussing basic concepts, motives, strategies, and valuation techniques to their application to increasingly complex and real-world situations. The book explains these methods from both a management and investor perspective while emphasizing the wealth effects on shareholders of these different strategies. Thus, this volume spans the gamut from theoretical to practical, while attempting to offer a useful balance of detailed and user-friendly coverage.

DISTINGUISHING FEATURES OF THE BOOK

Given the popularity and importance of mergers, acquisitions, divestitures, and other financial capital restructuring, the fact that many books deal with these topics is not surprising. Yet, most do not offer the scope of coverage and breadth of viewpoints contained in this volume. The book provides a comprehensive and current discussion of theoretical developments, empirical results, and practice involving M&As. Where possible, this volume avoids theoretical and mathematical derivations unless they are necessary to explain the topic. It attempts to distill the results of several hundred empirical studies in an understandable and clear manner.

The book has seven other distinguishing features.

1. The book attempts to blend the conceptual world of scholars with the pragmatic view of practitioners. This volume is not a "how to" book or a simple easy-to-use-guide but instead incorporates theory and practice. It also provides a synthesis of important and relevant research studies in a straightforward and pragmatic manner and includes recent developments.

2. The book contains contributions from more than 40 scholars and practitioners from around the world who are leading experts in their fields. Thus, the breadth of contributors ensures a variety of perspectives and a rich interplay of ideas.

3. This book emphasizes best practices that lead to M&A success. Such practices focus on valuing the target, negotiating and financing the deal, and engaging in postacquisition planning and integration.

4. The book offers a strategic focus to help provide an understanding of how these decisions can affect overall value. These strategies include both takeover and defensive strategies.

5. The book has a global focus rather than being U.S.-centric. It reviews research dealing with both U.S. firms and others from around the world. Special emphasis is placed on the cross-border effects involving developed and emerging markets.

6. The book examines both technical and human aspects of M&As. The technical aspects mainly deal with legal, regulatory, and valuation issues. By contrast, the human aspects deal with issues involving corporate governance, cultural due diligence, organization and human resources, and the behavioral effects.

7. Each chapter contains a set of discussion questions that helps to reinforce key aspects of the chapter's content. A separate section near the end of the book contains guideline answers to each question.

INTENDED AUDIENCE FOR THE BOOK

The intended audience for this book includes academics, researchers, practitioners (e.g., business executives, managers, investment bankers, lawyers, and consultants), students, libraries, and others interested in mergers, acquisitions, and restructuring. Given its extensive coverage and focus on the theoretical and empirical literature, this book should be appealing to academics and researchers as a valuable resource. Practitioners can use this book to provide guidance in helping them navigate through these strategic transactions. This book should be appropriate as a stand-alone or supplementary book for advanced undergraduate and graduate business students as well as for management training programs in M&As. Finally, libraries should find this work to be suitable for reference purposes.

STRUCTURE OF THE BOOK

The remainder of this book consists of 28 chapters divided into six main parts. A brief synopsis of each part and chapter follows.

Part I. Background

This part contains six chapters (Chapters 2–7) that provide important background information that sets the stage for the remaining sections. The first three chapters focus on merger waves, takeover regulation, and corporate governance. Next, Chapters 5 and 6 examine ethical, social, and theoretical issues involving M&As. Chapter 7 focuses on the short-term and long-term performance of M&As.

Chapter 2 Merger Waves (Jarrad Harford)

The chapter surveys the vast literature on mergers with a focus on merger waves. The motives for mergers run the spectrum from a purely efficient reshuffling of assets to purely managerial driven empire-building strategies. Because merger activity clusters in time and within industries, an understanding of the causes of these merger waves is needed to comprehend the dominant motivations behind mergers. Research clearly establishes a link between aggregate economic activity, especially as reflected in the stock market, and aggregate merger activity. Further, research shows that technological, regulatory, and economic shocks to industries' operating environment, coupled with macro-level ease of financing, generate merger waves. While the primary driver of merger activity is economic efficiencies, room exists for other motives such as empire building. Nonetheless, the other motives do not dominate the activity.

Chapter 3 Takeover Regulation (Marina Martynova and Luc Renneboog)

Takeover regulation is a set of legal provisions aimed at facilitating efficient corporate restructuring, mitigating potential conflicts of interest among parties involved in the control change transaction, and protecting minority shareholders. This chapter reviews the major takeover regulation provisions present in different jurisdictions around the world that include the mandatory bid rule, principle of equal treatment of shareholders, squeeze-out and sell-out rules, ownership and control disclosure, board neutrality concerning the takeover bid, and restrictions regarding the use of takeover defense measures. The chapter shows that takeover regulation provisions vary substantially across jurisdictions, reflecting different priorities as to the goals regulators set relating to the development of the takeover market and corporate governance.

Chapter 4 Corporate Governance and M&As (Fei Xie)

This chapter surveys the body of research at the intersection of two broad literatures, corporate governance and M&As. Four major themes and findings emerge. First, M&As as a managerial disciplinary device and part of a comprehensive corporate governance system have powerful incentive effects on managers and valuation effects on shareholders and bondholders. Second, as major corporate investments, M&As generate higher returns for acquiring shareholders when acquiring managers operate in environments of better corporate governance. These environments are defined by exposure to threats of hostile takeovers, competition from the product market, effective monitoring by boards and institutional investors, a strong link between managerial wealth and performance, and the risk of financial distress and ceding control to creditors. Third, the target firm's corporate governance is also important as target shareholder gains are significantly higher when the interests of target managers and shareholders are better aligned. Lastly, as a mechanism to allocate resources to their most efficient use, M&As generate synergistic gains and efficiency improvement that increase with the difference in corporate governance between acquiring and target firms.

Chapter 5 Ethical and Social Issues in M&As (Robert W. McGee)

The press, politicians, policy makers, and some economists often view M&As negatively, as something that must either be stopped or heavily regulated. Some perceive that workers are harmed by M&As, which is sometimes the case, while others view M&As as anticompetitive, which is often not the case. From a philosophical perspective, one might raise the question of whether such activity should be regulated at all if M&As do not violate anyone's rights. Yet, this question is seldom raised. This chapter examines some ethical issues that have been raised and applies several tools of ethical analysis in an attempt to determine which acts are ethical and which are not.

Chapter 6 Theoretical Issues on Mergers, Acquisitions, and Divestitures (Abdul H. Rahman)

Value-increasing motives for corporate takeovers may be categorized as creating operational efficiencies or allocative synergies, which can create market power. Empirical findings suggest that the former category dominates managers' motives. Value-decreasing motives are based on managers' private interests such as reduction of employment risk, managerial discretion driven by excess free cash flow, and managers' overconfidence or hubris. Evidence suggests that M&As occur in waves and across industries. The level of merger activity is also positively correlated with bull stock markets. Several models, including those based on chief executive officer envy and firm size, offer explanations for this evidence. Divestitures may be viewed as managerial actions to reverse or correct previous strategic decisions such as diversification, or to establish strategic positioning. As such, while takeovers expand the boundary of the firm, divestitures do the opposite. Sources of divestiture gains include the focus hypothesis where managers attempt to eliminate business units in different industries. Divestment may also reduce information asymmetry and hence lead to a more optimal pricing mechanism for both the parent firm and the spin-off business unit. Finally, divestiture gains may arise from negative synergies when the firm is overdiversified.

Chapter 7 The Short-Term and Long-Term Performance of M&As (Shantanu Dutta and Samir Saadi)

This chapter focuses on short-term stock return performance of target and acquiring firms and long-term stock return and operating performance of acquiring firms. Evidence shows that target shareholders generally earn significantly positive abnormal returns but the acquirers' shareholders earn, on average, a zero abnormal return at the acquisition's announcement. Considerable variation exists in these results. However, various studies with non-U.S. data consistently report significant and positive abnormal returns for acquirers' shareholders around the announcement date. A set of other studies investigates the long-term stock return performance of acquiring firms. Most of these long-term studies conclude that acquiring firms experience significant negative abnormal returns over a one- to three-year period after the merger. Still, debate continues on this issue. Given a lack of consensus on market-based studies and counterintuitive results, a smaller but growing body of literature investigates the long-term operating performance of acquiring firms. Previous empirical studies in this area report mixed and inconsistent results.

Part II. Valuation

This part consists of four chapters (Chapters 8–11) dealing with valuation methods. Chapters 8 and 9 examine standard valuation methods and real options, respectively. Chapter 10 examines the adjustment needed for the implicit minority discount. Chapter 11 focuses on cross-border valuation effects in developed and emerging markets.

Chapter 8 Standard Valuation Methods for M&As (Pablo Fernandez)

This chapter describes the four main groups comprising the most widely used company valuation methods: (1) balance sheetbased methods, (2) income statement–based methods or multiples, (3) discounted cash flow methods, and (4) value creation methods using economic value added and economic profit. Conceptually correct methods are based on cash flow discounting. The chapter briefly discusses other methods that are conceptually incorrect but continue to be used in practice. The chapter also addresses the lack of agreement about ways of calculating the value of tax shields and the dispersion of the market risk premium used by professors and financial analysts.

(Continues...)

Excerpted from The Art of Capital Restructuringby H. Kent Baker Halil Kiymaz Copyright © 2011 by John Wiley & Sons, Ltd. Excerpted by permission of John Wiley & Sons. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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