Summary Take over Processess

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- Financial conglomerates: provide a flow funds to each segment of their operations, exercise control and are the ultimate financial risk takers.

- Managerial conglomerates: not only assume financial responsibility and control but also play a role in operating decisions and provide staff expertise and staff services.

Financial Conglomerates

Serves 5 distinct economic functions:

- Investment companies: improves risk/return ratios through diversification.

- Avoid gambler’s ruin (losses that might cause bankrupt): without this form of bankruptcy avoidance, the assets of the operating entity might be shifted to less productive uses.

- Potential contribution by financial conglomerates derives from their establishing programs of financial planning and control: improve the quality of general and functional managerial performance resulting efficient operations and better resource allocation.

- If management does not perform effectively but the productivity of assets in the market is favorable, then the management is changed: effective competitive process because under more efficient management to ensure more effective use of resources.

- Financial planning and control process, made between performance based on potentials in the product market area and results to managerial performance.

Managerial Conglomerates

Providing managerial counsel and interactions on decisions (management functions: planning, organizing, directing, controlling), managerial conglomerates increase the potential for improving performance.

In the managerial conglomerates, the economic benefits are achieved through corporate headquarters that provide the individual operating entities with expertise and counsel on the generic management functions.

Concentric Companies

Difference to managerial conglomerates, concentric companies refer to specific management functions (manufacturing, finance, marketing, personnel).

- Merger in a Legal Framework

From the legal standpoint, the statutory merger is the basic form of transaction. The transaction is governed by the statutory provisions of the state or states in which the parties to the merger are chartered. The main elements of a statutory merger are the percentage vote required for approval of the transaction, who is entitled to vote, how to votes are counted, and the rights of the voters who object to the transaction of its term.

The law also makes provision for short-form merger. The legal procedures are streamlined, and shareholder approval is not required. In such transaction, the ownership of corporation is concentrated in the hands of a small group, usually referred to as insiders. The threshold ownership requirement is usually 90%.

- The Nature of Tender Offers

In tender offer, the bidder, which typically seeks the approval of the company management and board of directors of the target company, makes an offer directly ti shareholders of the target firm. The bidder’s obtaining 50% or more of the shares of the target firm if equivalent to having received shareholder approval. In this case, the shareholders have voted with their pocketbooks.

- Risk Abritage in Merger and Acquisition Activity

Arbitrage is defined as purchasing in one market for immediate sale in another at higher price. Thus, arbitrageurs take advantage of temporary price discrepancies between markets. By their actions, the differences are eliminated, driving prices up by their purchases in one market and driving prices down by their sales in other. Arbitrageurs may take offsetting positions in one security in two markets or in equivalent securities in one or two markets to make profits without assuming any risk under the theory of pure arbitrage

In the area if merger and acquisitions, risk arbitrage is the practice of buying the stock of takeover targets after a merger is publicly announced and holding the stock until the deal is officially consummated. The risk arbitrageur purchases the stock at a discount to its eventual value at the close of the merger. By taking a position in the stock of target firms, risk arbitrageurs are, in effect, betting that the merger will be successful. Thus, the term risk arbitrage is used differently from the true or original concept of arbitrage.

Chapter 2 The Legal and Regulatory Framework

- The Main Securities Laws

Because wide price fluctuations are likely to be associated with merger and acquisition activity public policy has been concerned that investors be treated fairly. Legislation and regulations have sought to carry over to the takeover activity of recent decades the philosophy of the securities acts of the 1930s. The aim is prompt and full disclosure of relevant information in the effort to achieve a fair "playing field" for all participants. Because the takeover laws are so closely interlinked with securities laws generally.

The federal securities laws consist mainly of eight statues:

- Securities Act of 1933 (SA)

- Securities Exchange Act of 1934 (SEA)

- Public Utility Holding Company Act of 1935 (PUHCA)

- Trust Indenture Act of 1939 (TIA)

- Investment company Act of 1940 (ICA)

- Investment Advisers Act of 1940 (IAA)

- Securities Investor Protection Act of 1970 (SIPA)

- Sarbanes-Oxley Act of 2002 (SOA)

Each laws covers to provide an overview of the pattern of legislation. The early major acts were enacted beginning in 1933. There is a reason for the timing. The stock market crash of 1929 was followed by continued depressed markets for several years. Because so many investors lost money, both houses of Congress conducted lengthy hearings to find the causes

and the culprits. The hearings were marked by sensationalism and wide publicity. The securities acts of 1933 and 1934 were the direct outgrowth of the congressional hearings.

- The Operation of the Securities Acts

- The Securities Act of 1933

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