Notes – Global Mergers and Acquisitions, Volume I


Chapter 1

1. The chain index method uses the value of the variable from the previous period as the base period for calculation of the index value for the current period.

2. We note that the total exports must equal the total imports. However, the values of imports and exports stated in the paragraph are different, and the difference is due to the adjustments of data by the data collection organization, the WTO. The WTO defines commercial services as follows: “Exports and imports of total commercial services, manufacturing services on physical inputs owned by others, maintenance and repair services n.i.e., transport, travel, and the breakdown of other commercial services.”

3. For detailed discussions of the classification of services, see Pavitt (1984), Miozzo and Soete (2001), and Castellacci (2008).

Chapter 2

1. For technical discussions of various types of mergers, see Chapter 5 of Reed, Lajoux, and Nesvold (2007).

2. Civil law is a legal system that has its intellectual roots in the Roman law and is mostly prevalent in Europe. The principles of the civil law are codified. In contrast, the common law system is based on legal precedence and the decisions made by jurists in earlier court cases.

3. See Chapter 11 for details of currency fluctuations.

Chapter 3

1. Off-balance sheet liabilities are the liabilities of the parent company that have been passed on to the subsidiaries and do not breach the accepted accounting principles and practices.

2. For historical comparison, we also collected information on M&A shareholder litigation of deals valued over $500 million and announced in 2007 to 2009.

Chapter 5

1. Market power refers to the ability of a firm to define the prices it charges.

2. According to Ng (2013), the cost of financial due diligence ranges from $50,000 to 100,000 and takes 1 or 2 months to complete, while an audit requires 3 to 6 months and costs 5 to 10 times more than the cost of financial due diligence.

3. The discussions about the term sheet are drawn heavily from Ng (2013).

Chapter 6

1. For a concise discussion of differences between the two methods, see Ketz (2002).

2. A write-off of an asset is an accounting transaction, which reduces the value of an asset to 0, and its original value is considered as an expense. When an asset becomes obsolete or not usable, a write-off takes place. For example, suppose a company purchases a printer for $10,000, and after using it for 2 years a new printer is purchased. The old printer is considered obsolete, its value as an asset is entered 0 in the books, and its purchase price of $10,000 is counted as an expense.

3. A write-down is an accounting transaction that reduces the value of an asset because of damage to the asset.

4. A write-up is an accounting transaction, which increases the book value of an asset because its carrying value is less than the fair market value.

Chapter 7

1. Discussions in this chapter are heavily drawn from Weston, Mitchell, and Mulherin (2004).

2. For detailed discussions of the methods, see Chapter 10 of Brigham and Ehrhardt (2014).

Chapter 9

1. For detailed discussions of valuation of options, see Arzac (2008).

Chapter 10

1. Roughly speaking, a closed form solution to f (x) = 0 means that elementary expression g (c1, c2,…,cp) such that f (g(c1, c2,…, cp)) = 0, exists.

2. An Asian option has a payoff that depends on the average price of the underlying asset for the whole or part of duration of the option.

3. We used a modified binomial method and applied it to free cash flows in valuation of real options in Chapter 9.

4. The option formulas for dividend paying stocks are different and will be discussed below. For more detailed discussions of options, see Hull (2013).

5. Note the difference between T and Δt. T refers to any length of time, for example, a week, a month, a year, and Δt refers to a very short time. Also, t* refers to the expiration date of the option in the option formulas.

6. The critical observer might ask how the stock prices could have volatility if the stock exchanges are closed and no stocks are traded. To answer this question, we note that some stocks are traded after closing of the exchanges such as New York Stock Exchange. The after-hours stock trading takes place from 4 to 8 p.m. Eastern Standard Time and usually institutional stock market investors such as mutual funds are active players during the after-hours trading.

7. Technically, the formula should be 1/n, where n is the number of years remaining until expiration of the put option. However, since we are calculating the put option at the start of the project, we have T = n.

Chapter 11

1. A price index is a weighted average of a basket of goods and services with the quantities of purchases used as weighing factors. For a definition of weighted average, see Chapter 8.

Chapter 12

1. For detailed discussions of these components of deal structuring, see DePamphilis (2012), Chapter 11.

Chapter 13

1. According to the aim and scope of the present work, our discussions of postmerger integration present an overview of the process. For detailed discussions of all sundry aspects of postmerger integration, we refer the reader to Chapter 9 of Reed, Lajoux, and Nesvold (2007).

2. We refer the interested reader to Chapter 8 of Nickels, McHugh, and McHugh (2008) for detailed discussions of building an organization.

3. Note that we differentiate between integration strategy and integration method.

4. Just-in-time inventory control system is used in a production system in which a minimum of material inputs is kept in warehouses, and materials are supplied just in time to be used on the assembly line.

5. INSEAD is the leading business school in France.

6. The term synergy refers to the notion that combining two elements leads to a sum that is greater than the sum of the individual values.