Mergers and Acquisitions: Where Is It Heading in Terms of Method of Payment?: A Comprehensive Study
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Authors
Mikelic, Helen
Issue Date
1991
Type
Thesis
Language
en_US
Keywords
Alternative Title
Abstract
For over a century surges of mergers and acquisitions have come and gone.
Takeovers have become a prominent means of expansion in Corporate America as opposed
to internal expansion. During the decade of the 1980s, $2 trillion was spent on shuffling
assets through the acquisition and restructuring of 25, 000 U.S. companies. The debate
goes on whether these deals were good for any company in specific or for the economy in
general. The recent surge shows signs of subsiding, at least in the U.S. As a result of the
external pressures of the U.S. recession and Persian Gulf War, executives, bankers, and
lenders have been forced to thoroughly examine their investment decisions on a financing
viewpoint Specifically, they are concentrating on the method of payment and are realizing
the difference in the types of financing.
This paper investigates the capital structure of a takeover. It focuses on the
different methods of payment and determines the most frequently used acquisition currency
from mergers and acquisitions (m&a) from various industries occurring during 1988-
1990. Consistent with earlier studies, this paper has found that cash is the dominant
method of payment. Cash is preferred because it conveys positive signals on the future
prospects of the acquisition as opposed to stock offers which yield smaller stock returns of
the bidding firm. Furthermore, the increased use of cash over the decade indicates more
value-conscious deal-making. The issuance of additional shares could cause a dilution in
shareholder value of the bidder's common stock, thus reducing the overall value of the
firm.
Where is m&a activity heading into in terms of method of finance? The findings of
this paper reveal a sharp increase in the use of stock in 1990. However, "cash remains
king" as the acquisition currency. The paper also finds m&a movement to Europe. Most
countries have the m&a fever, but not the adverse side effects.
Description
149 p.
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