However, an acquiror relying on the Tier II exemption will have to comply with the remaining tender offer provisions. These provisions include, among others, the following: 1 keeping the offer open 20 business days; 2 filing a Schedule TO; 3 disseminating the offering documents; and 4 offering withdrawal rights. Although compliance with these requirements may impose costs to cross-border tender offers, compliance will still be less burdensome than satisfying all the U. The transfer restrictions that we adopt today provide that to the extent the securities that are the subject of an exchange offer, business combination or rights offering are "restricted securities" under Rule in the hands of the U.
We had proposed that securities received in a rights offering pursuant to Rule be restricted whether or not the securities that are subject to the offering were restricted. We are persuaded by the large number of commenters who argued that requiring unaffiliated U. The rules we adopt today base the method of calculation of the amount of the subject securities held by U. That method more closely reflects the beneficial ownership of the issuer's securities.
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Rule 12g a requires the offeror to "look through" the record ownership of brokers, dealers, banks or nominees holding securities for the accounts of their customers to determine the residency of those customers. Offerors also must take into account information regarding U. Several commenters on the proposed release and the international disclosure standards proposing release suggested that using a beneficial ownership test would create a substantial burden for companies that trade in many different markets, and that widely-held companies would have to invest significant effort and expense in determining beneficial ownership in many jurisdictions where the likelihood of finding U.
In order to address these concerns, we have limited the application of the "look through" provisions of Rule 12g a to voting securities held of record 1 in the United States, 2 in the issuer's home jurisdiction, and 3 in the primary trading market for the issuer's securities if different from the issuer's home jurisdiction. This modification to the test should reduce the burden on foreign companies while still producing a reasonably accurate picture of whether U. As noted in the discussion above, we have minimized this burden.
In any event, if after reasonable inquiry, the offeror is unable to obtain information about the nominee's customer accounts, including when the nominee's fees would be unreasonable, the offeror may rely on a presumption that the customer accounts are held in the nominee's principal place of business. No specific data was provided in response to the Commission's request in the proposing release regarding the costs and benefits associated with today's amendments. We have anecdotal information regarding numerous transactions that have excluded U. The commenters also agreed that these exclusionary offers are common practice.
Because offerors do not file documents with the Commission when U. Further, if the transaction is a tender offer for securities that are not registered under Section 12 of the Exchange Act, and is subject only to Regulation 14E, there is no filing obligation. Therefore, we are unable to estimate the number of entities that will take advantage of the exemptions. While we are unable to determine how many U.
The commenters agreed.
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Section 23 a of the Exchange Act requires us, in adopting rules under the Exchange Act, to consider the impact any rule would have on competition. We cannot adopt any rule that would impose a burden on competition not necessary or appropriate in the public interest. We did not receive any information on the impact of increased competition for capital for domestic companies as a result of an increase in securities offered into the United States by foreign companies or as to whether the benefit to U.
Because the rules we adopt today are designed to allow U. Exempting foreign tender, exchange and rights offers from certain federal securities laws may have a competitive effect on U. We believe these effects are justified in order to benefit U. Therefore, our view is that any anticompetitive effects of the rules adopted today for cross-border tender and exchange offers, business combinations and rights offerings are necessary or appropriate in the public interest. Section 2 b of the Securities Act and Section 3 f of the Exchange Act, as amended by the National Securities Markets Improvement Act of , provide that whenever the Commission is engaged in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest, the Commission also shall consider, in addition to the protection of investors, whether the action will promote efficiency, competition and capital formation.
For the reasons stated above, we believe the rules will facilitate a variety of cross-border transactions, thereby enhancing the efficiency of global competition for capital. We find that it is appropriate, in the public interest and consistent with the protection of investors, as well as the purposes fairly intended by the Trust Indenture Act: i to exempt eligible tender offers from certain provisions of the Exchange Act and the rules thereunder relating to tender offers, as described in this release, ii to exempt eligible tender and exchange offers, business combinations and rights offerings from the registration provisions of the Securities Act, as described in this release, iii to exempt eligible exchange offers or business combinations from the Trust Indenture Act, as described in this release, and iv to amend the Commission's general organization rules in order to delegate to the Directors of the Divisions of Corporation Finance and Market Regulation authority to exempt tender offers from specific tender offer requirements.
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We make these findings based on the reasons described in the release. In particular, we believe that U. Our use of exemptive authority will enable U. Similarly, the rules will enable U. Moreover, investors will still receive the protections of the antifraud provisions of the federal securities laws. The Commission also finds, in accordance with Section d of the Administrative Procedure Act, that the delegation of exemptive authority in this release relates to agency organization, procedure, or practice.
Accordingly, the delegation is effective upon publication. The analysis notes that the adopted rules are intended primarily to facilitate tender and rights offerings for securities of foreign private issuers held by U. The resulting reduction in the expense, time and effort of making such offerings will benefit U.
These persons normally are excluded from such offerings. Entities that wish to extend these offers to U. The adopted rules are limited to tender offers and exchange offers for the securities of foreign private issuers. But both foreign and domestic bidders, whatever their size, are eligible to use these exemptions. Only foreign private issuers are eligible to use the exemption for rights offerings.
Small entities can rely on the adopted tender and exchange offer exemptions on the same basis as larger entities, so long as they meet the conditions for relying on them. We know of approximately Exchange Act reporting companies that are not investment companies that currently satisfy the definition of "small business" under Rule There are approximately investment companies that satisfy the "small business" definition.
We have no data to determine how many reporting or non-reporting small businesses may actually rely on the rules, or may otherwise be affected by the rules. However, we believe that the rules will result in a substantial savings to entities both small and large that qualify for the exemptions. Qualifying entities under the Tier I and Securities Act exemptions will not have to comply with the tender offer and registration requirements of the U.
The FRFA notes that the adopted rules will eliminate certain existing reporting requirements for entities conducting an exempt tender or exchange offer. Further, in a rights or exchange offer, an acquiror will not need to register the securities being issued. In place of these filing obligations, an acquiror relying on the new exemptions will submit, rather than file, Form CB. Form CB is merely a cover sheet that incorporates the offering documents sent to security holders pursuant to the requirements of the country in which the issuer is incorporated.
Also, a non-U. As stated in the analysis, we considered several alternatives to the rules adopted today, including:. The Commission considered requiring that offerors deliver rights offering materials to U. We were persuaded by those commenters who indicated that offerors will not be inclined to avail themselves of Rules or if burdensome documentation and dissemination requirements are imposed by the U.
This will minimize the burden on offerors in rights offerings, including small businesses. The Commission considered whether to require a valuation opinion in all cases where an offeror chooses to offer U. We decided to only require a valuation opinion where the offered securities are not "margin securities" within the meaning of Regulation T in order to minimize the burden on offerors, including small businesses.
The Commission considered whether to use a beneficial ownership test in determining U. In reviewing the method of determining U. In order to address these concerns, we limited the application of the "look through" provisions of Rule 12g a to voting securities held of record 1 in the United States, 2 in the issuer's home jurisdiction, and 3 in the primary trading market for the issuer's securities if different from the issuer's home jurisdiction. This modification to the test should reduce the burden on companies, including small businesses, while still producing a reasonably accurate picture of whether U.
The Commission considered permitting registration of securities issued in rights offering and exchange offers to be based on home country documents. However, the Commission determined not to repropose a home-country based registration system because the disclosure and accounting standards of foreign jurisdictions are not always consistent with the level of prospectus disclosure expected in a registered offer under the Securities Act. Further, a registration-based exemption would lead to a periodic reporting obligation that small entities might find burdensome.
The analysis also indicates that the rules and forms being adopted today do not duplicate or conflict with any existing federal rule provisions. We requested but received no comments on the Initial Regulatory Flexibility Analysis prepared in connection with the proposing release. We are adopting these revisions pursuant to Sections 3 b , 7, 8, 10, 19 and 28 of the Securities Act, Sections 12, 13, 14, 23 and 36 of the Exchange Act, and Section of the Trust Indenture Act. Authority: 15 U. Sections Section These sections provide exemptions only for the transaction in which the issuer or other person offers or sells the securities, not for the securities themselves.
Business combination means a statutory amalgamation, merger, arrangement or other reorganization requiring the vote of security holders of one or more of the participating companies. It also includes a statutory short form merger that does not require a vote of security holders. Exchange offer means a tender offer in which securities are issued as consideration. Foreign subject company means any foreign private issuer whose securities are the subject of the exchange offer or business combination. Home jurisdiction means both the jurisdiction of the foreign subject company's or in the case of a rights offering, the foreign private issuer's incorporation, organization or chartering and the principal foreign market where the foreign subject company's or in the case of a rights offering, the issuer's securities are listed or quoted.
Rights offering means offers and sales for cash of equity securities where:. If an existing security holder holds depositary receipts, the proportion must be calculated as if the underlying securities were held directly. To determine the percentage of outstanding securities held by U.
Exclude from the calculations other types of securities that are convertible or exchangeable into the securities that are the subject of the tender offer, such as warrants, options and convertible securities. Exclude from those calculations securities held by persons who hold more than 10 percent of the subject securities, or that are held by the offeror in an exchange offer or business combination;.
A rights offering is exempt from the provisions of Section 5 of the Act 15 U. The issuer is a foreign private issuer on the date the securities are first offered to U. The issuer permits U. The issuer need not, however, extend the rights offering to security holders in those states or jurisdictions that require registration or qualification. The securities offered in the rights offering are equity securities of the same class as the securities held by the offerees in the United States directly or through American Depositary Receipts.
The terms of the rights prohibit transfers of the rights by U. The following legend or an equivalent statement in clear, plain language, to the extent applicable, appears on the cover page or other prominent portion of any informational document the issuer disseminates to U. This rights offering is made for the securities of a foreign company.
The offer is subject to the disclosure requirements of a foreign country that are different from those of the United States. Financial statements included in the document, if any, have been prepared in accordance with foreign accounting standards that may not be comparable to the financial statements of United States companies. It may be difficult for you to enforce your rights and any claim you may have arising under the federal securities laws, since the issuer is located in a foreign country, and some or all of its officers and directors may be residents of a foreign country.
You may not be able to sue the foreign company or its officers or directors in a foreign court for violations of the U. It may be difficult to compel a foreign company and its affiliates to subject themselves to a U. Offers and sales in any exchange offer for a class of securities of a foreign private issuer, or in any exchange of securities for the securities of a foreign private issuer in any business combination, are exempt from the provisions of Section 5 of the Act 15 U.
Except in the case of an exchange offer or business combination that is commenced during the pendency of a prior exchange offer or business combination made in reliance on this paragraph, U. In the case of a business combination in which the securities are to be issued by a successor registrant, U. The issuer must permit U.
The issuer, however, need not extend the offer to security holders in those states or jurisdictions that require registration or qualification, except that the issuer must offer the same cash alternative to security holders in any such state that it has offered to security holders in any other state or jurisdiction. The following legend or an equivalent statement in clear, plain language, to the extent applicable, must be included on the cover page or other prominent portion of any informational document the offeror publishes or disseminates to U.
This exchange offer or business combination is made for the securities of a foreign company. The offer is subject to disclosure requirements of a foreign country that are different from those of the United States. You may not be able to sue a foreign company or its officers or directors in a foreign court for violations of the U. You should be aware that the issuer may purchase securities otherwise than under the exchange offer, such as in open market or privately negotiated purchases. A Registered exchange offers. If the issuer or affiliate offers securities registered under the Securities Act of 15 U.
B Exempt exchange offers. C Cash only consideration. The issuer or affiliate may offer U. D Disparate tax treatment. If the issuer or affiliate offers "loan notes" solely to offer sellers tax advantages not available in the United States and these notes are neither listed on any organized securities market nor registered under the Securities Act of 15 U. B The issuer or affiliate must disseminate any informational document to U. C If the issuer or affiliate disseminates by publication in its home jurisdiction, the issuer or affiliate must publish the information in the United States in a manner reasonably calculated to inform U.
Any issuer tender offer including any exchange offer that meets the conditions in paragraph i 1 of this section shall be entitled to the exemptive relief specified in paragraph i 2 of this section provided that such issuer tender offer complies with all the requirements of this section other than those for which an exemption has been specifically provided in paragraph i 2 of this section:. The issuer tender offer shall comply with all requirements of this section other than the following:. If the issuer or affiliate offers loan notes solely to offer sellers tax advantages not available in the United States and these notes are neither listed on any organized securities market nor registered under the Securities Act 15 U.
Notwithstanding the provisions of paragraph f 8 of this section, an issuer or affiliate conducting an issuer tender offer meeting the conditions of paragraph i 1 of this section may separate the offer into two offers: one offer made only to U. The offer to U. Notice of extensions made in accordance with the requirements of the home jurisdiction law or practice will satisfy the requirements of. Home jurisdiction means both the jurisdiction of the issuer's incorporation, organization or chartering and the principal foreign market where the issuer's securities are listed or quoted.
Calculate the U. Include securities underlying American Depositary Shares convertible or exchangeable into the securities that are the subject of the tender offer when calculating the number of subject securities outstanding, as well as the number held by U. Exclude from those calculations securities held by persons who hold more than 10 percent of the subject securities;. If, after reasonable inquiry, you are unable to obtain information about the amount of securities represented by accounts of customers resident in the United States, you may assume, for purposes of this definition, that the customers are residents of the jurisdiction in which the nominee has its principal place of business; and.
Count securities as beneficially owned by residents of the United States as reported on reports of beneficial ownership that are provided to you or publicly filed and based on information otherwise provided to you. United States. The exemptions provided by paragraphs h 8 and i of this section are not available for any securities transaction or series of transactions that technically complies with paragraph h 8 or i of this section but are part of a plan or scheme to evade the provisions of this section.
The bidder must permit U. If the bidder offers securities registered under the Securities Act of 15 U. The bidder may offer U. If the bidder offers loan notes solely to offer sellers tax advantages not available in the United States and these notes are neither listed on any organized securities market nor registered under the Securities Act of 15 U. The issuer of the securities that are the subject of the tender offer is not an investment company registered or required to be registered under the Investment Company Act of 15 U.
A person conducting a tender offer including any exchange offer that meets the conditions in paragraph d 1 of this section shall be entitled to the exemptive relief specified in paragraph d 2 of this section provided that such tender offer complies with all the requirements of this section other than those for which an exemption has been specifically provided in paragraph d 2 of this section:.
Notwithstanding Section 14 d 5 of the Act 15 U. Home jurisdiction means both the jurisdiction of the subject company's incorporation, organization or chartering and the principal foreign market where the subject company's securities are listed or quoted. Except as otherwise provided in Instruction 3 below, to determine the percentage of outstanding securities held by U. Exclude from those calculations securities held by persons who hold more than 10 percent of the subject securities, or that are held by the bidder;. In a tender offer by a bidder other than an affiliate of the issuer of the subject securities, the issuer of the subject securities will be presumed to be a foreign private issuer and U.
The aggregate trading volume of the subject class of securities on all national securities exchanges in the United States, on the Nasdaq market, or on the OTC market, as reported to the NASD, over the calendar-month period ending 30 days before commencement of the offer, exceeds 10 percent 40 percent in the case of 14d-1 d of the worldwide aggregate trading volume of that class of securities over the same period;.
The most recent annual report or annual information filed or submitted by the issuer with securities regulators of the home jurisdiction or with the Commission indicates that U. The bidder knows or has reason to know that the level of U. The exemptions provided by paragraphs c and d of this section are not available for any securities transaction or series of transactions that technically complies with paragraph c or d of this section but are part of a plan or scheme to evade the provisions of Regulations 14D or 14E.
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C Any person specified in paragraph d 1 of this section disseminates any informational document to U. D Any person specified in paragraph d 1 of this section disseminates by publication in its home jurisdiction, such person must publish the information in the United States in a manner reasonably calculated to inform U. Form CB is attached as Appendix A.
Please place an X in the box es to designate the appropriate rule provision s relied upon to file this Form:. Any member of the public may direct to the Commission any comments concerning the accuracy of this burden estimate and any suggestions for reducing this burden. This collection of information has been reviewed by OMB in accordance with the clearance requirements of 44 U. Use this Form to furnish information pursuant to Rules 13e-4 h 8 , 14d-1 c and 14e-2 d under the Securities Exchange Act of "Exchange Act" , and Rules and under the Securities Act of "Securities Act".
For the purposes of this Form, the term "subject company" means the issuer of the securities in a rights offering and the company whose securities are sought in a tender offer. For the purposes of this Form, the term "tender offer" includes both cash and securities tender offers. The information and documents furnished on this Form are not deemed "filed" with the Commission or otherwise subject to the liabilities of Section 18 of the Exchange Act. Each copy must be bound, stapled or otherwise compiled in one or more parts, without stiff covers.
The binding must be made on the side or stitching margin in such manner as to leave the reading matter legible. The persons specified in Part IV may manually sign the original and at least one copy of this Form and any amendments. You must conform any unsigned copies. Typed signatures are acceptable so long as manually signed copies are retained by the filing person for five years. You must furnish this Form to the Commission no later than the next business day after the disclosure documents submitted with this Form are published or otherwise disseminated in the subject company's home jurisdiction.
In addition to any internal numbering you may include, sequentially number the manually signed original of the Form and any amendments by handwritten, typed, printed or other legible form of notation from the first page of the document through the last page of the document and any exhibits or attachments. Further, you must set forth the total number of pages contained in a numbered original on the first page of the document. Under Sections 3 b , 7, 8, 10, 19 and 28 of the Securities Act of , and Sections 12, 13, 14, 23 and 36 of the Exchange Act of and the rules and regulations adopted under those Sections, the Commission is authorized to solicit the information required to be supplied by this form by certain entities conducting a tender offer, rights offer or business combination for the securities of certain issuers.
Disclosure of the information specified in this form is mandatory. We will use the information for the primary purposes of assuring that the offeror is entitled to use the Form and that investors have information about the transaction to enable them to make informed investment decisions. We will make this Form a matter of public record. Therefore, any information given will be available for inspection by any member of the public. Because of the public nature of the information, the Commission can use it for a variety of purposes.
These purposes include referral to other governmental authorities or securities self-regulatory organizations for investigatory purposes or in connection with litigation involving the Federal securities laws or other civil, criminal or regulatory statutes or provisions. The Form need not include any documents incorporated by reference into those disclosure document s and not published or distributed to holders of securities. Indicate on the cover page the number of the amendment. You may need to include legends on the outside cover page of any offering document s used in the transaction.
See Rules b and b. Note to Item 2. If you deliver the home jurisdiction document s through an electronic medium, the required legends must be presented in a manner reasonably calculated to draw attention to them. The exhibits specified below must be furnished as part of the Form, but need not be sent to security holders unless sent to security holders in the home jurisdiction. Letter or number all exhibits for convenient reference.
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If a person's authorized representative signs, and the authorized representative is someone other than an executive officer or general partner, provide evidence of the representative's authority with the Form. After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. For example, based on a sample of 31 tender offers compiled in by the U. Takeover Panel the entity that regulates tender offers in the United Kingdom , when the U. In the 30 offers that excluded U. Those letters can be obtained for public inspection and copying by requesting File No.
S through our public reference room in Washington D. The determination should be made at the commencement of the offer. The amount of cash consideration must be adjusted during the term of the offer only if the bidder no longer has a reasonable basis to believe the cash is substantially equivalent to the value of the securities offered to non-U.
The definition of a "margin security" in Regulation T, which is issued by the Board of Governors of the Federal Reserve System pursuant to the Exchange Act, includes "foreign margin stock. The opinion would not need to address the fairness of either form of consideration in relation to the value of the subject securities. A bidder may make one offer to U.
A bidder may also offer loan notes solely to non-U. The exception to the equal treatment condition of the Tier I exemption for cash only consideration adopted today would not apply to Tier II offers. The staff will continue to consider requests for that type of relief on a case-by-case basis. Likewise, vendor placement arrangements will be considered on a case-by-case basis.
If the request relates to an issuer tender offer, the request should be directed to the Office of Risk Management and Control in the Commission's Division of Market Regulation and the Office of Mergers and Acquisitions in the Commission's Division of Corporation Finance. If the request relates to a third party tender offer, the request should be directed to the Office of Mergers and Acquisitions. The application must comply with the requirements of Rule under the Exchange Act.
Any relief would be limited to what is necessary to accommodate conflicts between the regulatory schemes and practices. The text of the new rule is found in the Regulation M-A Release, supra note 6. The City Code states general principles for the regulation of takeovers conducted in the United Kingdom and the Republic of Ireland. See proposing release, supra note 8, at n. Without Rule 10b relief, Eligible Traders would have been forced to withdraw from trading in U. This limited class exemption recognized the information barrier and other requirements contained in the City Code that Eligible Traders must satisfy to be exempt from the City Code's "acting in concert" provisions.
This exemption required the Eligible Trader to comply with specified disclosure and recordkeeping requirements, and the Eligible Trader is prohibited from making purchases in the United States, which are consistent with conditions contained in other Rule 10b exemptions granted in the cross-border context. An issuer making an offering in reliance on either of the rules may claim any other available exemption under the Securities Act. Securities issued under new Rules or would not be integrated with any other exempt offerings by the issuer. General Notes to new Rules , , and If the offeror does not have a bona fide expectation that non-U.
Another example would be when an initial offer is commenced solely as a pretext for making a subsequent offer automatically eligible for the exemptions. For example, U. A significant number of these offerings had U. Costs borne by U. See Section II. In chapter 2. Here the success of the transaction will be discussed under the shareholder-, client-, employee-, as well as the society perspective.
The reader will also be introduced to the two methods used during this study. The last chapter 2. Barriers as well as potential drivers for further integration are analysed. Chapter 3 elaborates on the hypotheses developed. In order to find an answer to the research question, 7 hypotheses have been developed that will shed further light on the problem statement. The chapter ends by providing an overview of the developed hypotheses. Chapter 4 contains a description of the empirical data. While chapter 4. In chapter 4. Chapter 5 contains the empirical analysis of this study.
In Chapter 5. Finally, chapter 5. Here the operating long-term performance was analysed. Chapter 5. Chapter 6 tries to analyse the research question from a different angel by providing a case study of Unicredito and Hypo Vereinsbank. Thus, the reader should be familiar of a real life case, which will be complementary to the empirical results.
Chapter 7 incorporates the summary and final conclusion of this thesis. In chapter 7. Finally, implications for future research are discussed in chapter 7. Despite the frequent use of the term mergers and acquisitions a consistent as well as uniform comprehension of the term does not exist and therefore, a definition will be provided. Generally, acquisitions occur when a large company takes over a small one. Further, throughout the working paper, the term acquisition is used when one company acquires a majority interest in another company.
A merger typically involves two relative equals joining forces and creating a new company.
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Weston et al. A merger is considered a success if it increases shareholder value faster than if the company had remained separate Fuller et al. Due to the immutable fact that corporate takeovers and mergers can reduce competition, they are heavily regulated, often requiring government approval Gaughan, The terms, mergers and acquisitions, are used interchangeably throughout the paper even though some acquisitions are not mergers. Referring to the articles of Eschen as well as Beitel , the following table has been created that classifies the different transactions. Hence, horizontal transactions often aim at eliminating competitors, increasing ones market share as well as realizing valuable synergies Pearce, In contrast, vertical transaction refers to companies that operate along one value chain of a product or service.
Backward transactions typically involve the purchase of suppliers, whereas in forward transactions, activities are expanded to include control of the direct distribution of its products. For example, acquiring a supplier might be mainly driven by the aim to reduce the uncertainty of the supply of inputs and to control critical resources Pearce, Concentric transactions involve the acquisition of businesses that are related to the acquiring firm in terms of technology, markets, or products. Conglomerate mergers or lateral mergers emerge when companies do exhibit different value chains, are engaged in a different product as well as market segment and consequently do not directly compete against each other.
Such mergers are mainly justified by various diversification motives. Unlike concentric transactions, conglomerate mergers give little concern to creating product-market synergy with existing businesses. Pearce, In general, the majority of the mergers are considered to be friendly rather than hostile. Examples of a hostile takeover in the banking sector are the acquisition of NatWest by the Royal Bank of Scotland in as well as the acquisition of Paribas by BNP in Next, the type of the value transfer will be discussed.
The decision of which type of value transfer should be applied is mainly based on tax considerations.
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The method of payment does convey an important signal to the capital market, influencing the potential return for the acquirer and the target. For example, Myers and Majluf argue that a bidder is eager to use stock as the method of payment if the board believes that its own shares are overvalued. Since shareholders are aware of such actions, they are not inclined to accept a stock offer. Consequently, higher-valued acquirers will make use of cash in order to signal their value to the market. However, if the bidder is uncertain about the true value of the target, the bidder may not want to offer cash, due to the immutable fact that the target will only accept a cash offer greater than its true value and the bidder will have overpaid Fuller et al.
The following section deals with the motivations of mergers and acquisitions. Here, one needs to distinguish between. Synergies in its widest sense are the predominant motivation in mergers and acquisitions. Academics distinguish between operating as well as financial synergies, whereas the former comprises enhancements in any business function such as management, labour costs, production or distribution, resource acquisition and allocation of market power.
However when talking about synergies, operating synergies in the forms of economies of scale and economies of scope will be considered. Economies of scale basically deal with cost savings that a firm achieves when activities of the merged company can be combined and streamlined. In the banking sector, economies of scale results predominantly from combining particular back-office activities Beitel, Provisioning, production and distribution are basically the three sources in which economies of scope in the banking sector can be achieved.
Economies of scope are obtained if through the merger, the pooled offer of bank products as well as services is cheaper than the sum of the individual offers. Besides striving for operational synergies, banks often conduct mergers in order to replace inefficient management of the target company. By replacing management by a more efficient one, it is believed that the company will operate under full potential and that shareholder value as well as the undervalued price increases. A further significant driver for mergers and acquisitions is to strive for market power. In general, market power enables a bank to alter the market price for its products or services without suffering from loss of customers.
Especially, horizontal transactions of companies, leading to a concentration of the market, allow the company to fully exploit its market power. However, even if an increase in market power is desirable for any company, it is detrimental for the economy as a whole and therefore it is often subject to antitrust authority. Based on the portfolio theory by Markowitz , the purchase of not perfectly correlated financial instruments might lead to a reduction in the overall risk of the portfolio. However, shareholders do not value diversification effects per se due to the immutable fact that they are able to diversify at a lower cost by their own.
Amihud et al. Consequently, risk- reducing effects are often offset by risk-increasing effects. Hereby, the acquirer is trying to keep the premium as low as possible in order to reap a benefit arbitrage from the missvaluation of the market. One of a strategic motive might be the acquisition of valuable resources such as know-how, patents or technology, which can be transformed into an increase in the overall performance of the merged company. Another strategic motivation might be a new strategic positioning. Here, the bank changes its focus on clients, products or markets due to changing exogenous factors.
An example for a new strategic positioning with a change in the product focus of a company is the acquisition of Dresdner Bank by Allianz in Due to globalisation as well as the deregulation in the international financial markets, establishing a presence in the new environment is becoming more and more important. In order to achieve a competitive presence, banks need to grow in size. The size effect enables banks to play a more active role in the anticipated pan-European consolidation as well as being able to conduct certain business transactions 4.
Another important value-maximizing motive is the g-ratio, introduced by Weston and Chung Consequently, with the goal of capacity expansion, the acquisition of a company may be the more efficient cheaper way, compared with own capacity creation. Hence, acquiring that company is cheaper than buying all the essential goods to imitate its activity replacement value. The agency-theory explains how to best organize relationships in which one party the principal determines the work, which another party the agent undertakes.
Under conditions of incomplete information and uncertainty, the agency theory is basically concerned with resolving two problems that can occur in agency relationships: adverse selection and moral hazard. Adverse selection describes the condition under which the principal is not able to verify if the agent accurately represents his ability to do the work for which he is being paid. Moral hazard is based on the condition under which the principal cannot be certain if the agent has employed maximal effort in his work Eisenhardt, Jensen claims that free cash flow is a source of value-reducing mergers.
Based on the theory, a firm with high free cash flow is one where internal funds are in excess of the investments required to fund positive net present value NPV projects. The consequence of such substantial free cash flow might lead to value-reducing diversification decisions. A second value-reducing theory of mergers is the Shleifer-Vishny model of management entrenchment.
However, such management-specific investments do not enhance value to the shareholders themselves. In , the financial centre paid CHF This represents about CHF In , Swiss banks employed , people, of which 93, were employed in Switzerland. The EBF is the voice of the European banking sector, bringing together national banking associations from 45 countries. The EBF is committed to a thriving European economy that is underpinned by a stable, secure and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses and innovators everywhere.
Frankfurt office: Weissfrauenstrasse D Frankfurt am Main. Aeschenplatz 7, P. Contributor: Richard Hess Richard. Hess SBA. European Banking Federation The EBF is the voice of the European banking sector, bringing together national banking associations from 45 countries. EBF members.