Mergers and Acquisitions

							Mergers and Acquisitions




                           1
Merger Comparison


  Date   Companies      $ Value    GNP       $ Value/GNP

  1901    U.S. Steel-   $1 Bil.   $25 Bil.      4.0%
           Carnegie
  1998   Exxon-Mobile    $125     $7,707        1.6%
                          Bil.      Bil.




                                                           2
Merger Waves

    1898-1905
      Mining & Manufacturing
      Horizontal & Vertical
      Basic Industry Monopoly Structures
       Created (e.g., Standard Oil 70% of
       Refining)
      Key Companies Formed (e.g., DuPont,
       U.S. Steel)
      Sherman Anti-Trust Act (1898) Ineffective


                                                   3
Merger Waves

    1920-1930
      Section 7 of Clayton Act (1914) Ineffective
      12,000 Firms Disappeared

      Public Utility Holding Co’s. (e.g. AT&T)




                                                     4
Merger Waves

    WWII-1970s
      Celler Kefauver Act (1950) Closed
       Loophole
      Aggressive Anti-Trust Treatment of Large,
       Horizontal & Vertical Mergers
      Conglomerates and the “P/E Game” (e.g.,
       ITT, LTV)



                                                   5
The P-E Game
                NI        #SHARES           EPS             P/E    P

 Company A     $100           100           1.00            20    $20
 Company B      $50            50           1.00            5      $5
 Company A acquires B for $6 per share with an exchange of stock.
 NEW SHARES ISSUED:
                      50 shares$6per share 15new shares
                           $20per share


                 NI       #SHARES           EPS             P/E    P
 Company A      150           115           1.30            25    32.5
   (A+B)                                    +30%                  +63%


                                                                         6
Merger Waves
    1980s
        Relaxed Anti-Trust Treatment
        Large, Horizontal, Vertical & Conglomerate (e.g.,
         Chevron-Gulf $13b; GE-RCA $6b)
        Hostile Takeover Attempts & Responses (e.g.,
         Mesa-UnoCal; Revlon-Gillette)
        Debt Financing, Junk bonds, LBOs (e.g., KKR-
         RJR Nabisco $25b)
        State Anti-Takeover Legislation: Ohio,
         Pennsylvania, Maryland, Massachusetts
        Demise of Junk Bond Markets & Incarceration of
         M. Milken

                                                             7
Merger Waves
    1990s
        Strategic and Mega Acquisitions
        Stock Financing or Debt Bridge
        Different Industries
             Communications (AT&T-McCaw Cellular; World Com-MCI)
             Health Care (Merck-Med Co.)
             Finance (Travelers-Citi Corp.; Deutche Bank-Bankers Trust)
             Internet (AOL-Netscape)
             Energy (Dominion-Consolidate Natural Gas; Exxon-Mobil)
             Defense (Lockheed/Martin-Loral)
             Hotel (Starwood Lodging-ITT Sheraton)
    Transnational (Vodafone-Airtouch Communications; Daimler-
     Chrysler)
    European Arena (Olivetti-Telecom Italia)
    Stock Market Meltdown and Recession ended it



                                                                           8
Mid 2000 Merger Wave
    Examples
        P&G/Gillette
        Bank of America/Fleet
        JP Morgan/BankOne
        Federated (Filenes)/May (Macys)
        SBC/AT&T
        Verizon/MCI
        K-Mart/Sears
        Oracle/People Soft
        BP/Royal Dutch Shell


                                           9
Mid 2000 Merger Wave

    Characteristics
      Horizontal
      Cost Reductions and Layoffs
          Gillette 12,000 layoffs and cut retiree benefits
          AT&T 10,000 layoffs

        Executive Payouts
          CEO Kilts at Gillette gets $173 million to go
           away
          CEO Dorman at AT&T gets $16 million to go
           away


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