Financing capital: opportunities & threats

• government subsidies

• bank loans

• issuing bonds

• issuing shares acquisitions: buyouts and takeovers

(takeover bid vs. takeover raid)

Tue, February 17, 2009

Calgary oil company taken over by Brits

• CALGARY -- Debt-strapped Canadian oil company Bow Valley Energy Ltd. is being acquired by Britain's Dana Petroleum in a friendly deal valued at about $240 million.

Vocabulary

• to take over (v) = to _____ = to acquire• a takeover ≈ a buyout

a takeover (n) – the act of getting _______ of acompany by buying over 50% of its _____ (Longman,BED)

• friendly takeover <> ______/________ takeover• friendly deal <> ______/_________ deal

a buyout – when a person/organization buys abusiness

Vocabulary• to take over (v) = to buy = to acquire• a takeover ≈ a buyout

a takeover(n)– the act of getting control of a company by buying over 50% of its shares (Longman, BED)

• friendly takeover <> hostile/unfriendly takeover• friendly deal <> hostile/unfriendly deal –

unsolicited /hostile bids

a buyout – when a person or organization buys abusiness (Longman, BED)

a merger – an occasion when two or more companies join together to form a larger company

(Longman, BED)

Broadcom mounts hostile bid for EmulexChewing up poison pill 21st April 2009 • Chip designer Broadcom has launched a $764m

unsolicited bid for network adapter and array switch vendor Emulex.

• Broadcom first approached Emulex late last year, it has emerged, but Emulex broke these off and adopted a poison pill defense to thwart any unwanted bid. Broadcom has now gone public with its desire for the firm, setting the scene for a bruising takeover battle.

Vocabulary• to bid (v irregular: bid, bid)

– to offer to pay a particular price for sth.The company is bidding 910p a share for control

of AB Ports... The bidder is interested in...

• a bid (n)– a price offered to buy sth. such as goods,

property, shares, bonds (Longman BED)

Takeover bids:

- unwanted / unsolicited / hostile<>friendly bid

It’s a shark eat shark world

- shark

- shark repellent

- shark watcher

- poison pill defense

poison pill = shark repellent

a raid – an occasion when someone suddenly buys a lot of shares in a company

corporate r__________ (Reader I, Entrepreneurship?)

Vocabulary cont.: Match!

• launch• thwart• mount• adopt

• a $764m bid• a poisonous pill defence• a hostile bid• any unwanted bid

Can you simplify the language?

• mount / launch a bid

≈ make /start a bid

• adopt a defence

≈ use a defence

• thwart a bid

≈ frustrate / hinder a bid

Letter from Broadcom CEO Scott McGregor to Emulex executive chairman Paul Folino:

"As you know, we have believed for some time that a combination of our two companies would benefit both companies’ shareholders and the customers we serve. With that1 strategic opportunity to meet the needs of the market in mind, we sought to engage you and your Board of Directors in discussions in late December regarding a potential combination of Emulex with Broadcom.“

1 What does it refer to?

Continued:"We were disappointed when, in early January,

you responded that the company2 was not for sale and abruptly cut off the possibility3 of further discussions. Even more troubling was the fact that merely one week after that communication4, you took actions clearly designed to thwart the ability of your shareholders to receive a premium for their shares. These included adopting a “poison-pill” and amending your bylaws.

2 What company?3 Who cut off the possibility of discussions?4 What communication?

Continued:

"It is difficult for us to understand why Emulex’s Board of Directors has not been open to consideration of a combination of our respective companies. We would much prefer to have engaged in mutual and constructive discussions with you. However this opportunity5 is in our view so compelling we now feel we must share our proposal6 publicly with your shareholders.“

5 What opportunity?6 What is their proposal?

Mergers and acquisitions

Success Money Investments in R&D Acquisition of other companies

(t__________, b_______)Merger - integration:Comp. in unr___ed fields ConglomeratesCompetitors = horizontal m/i ver Distributors = forward m/i LBO ti Suppliers = backward m/ical stripped of assets

& split up

a_________financedby debt

afinancedby debt

Mergers and acquisitions

Success Money Investments in R&D Acquisition of other companies

(takeovers, buyouts)Merger - integration:Comp. in unrelated fields ConglomeratesCompetitors = horizontal m/i ver Distributors = forward m/i LBOti Suppliers = backward m/ical stripped of assets

& split up

acquisitionsfinanced by debt

MK U 19 Takeovers, mergers and buyouts

1c – read and decide• 1 B 2 A 3 B 4 B• 5 B 6 A 7 C 8 B• 9 A 10 C 11 A 12 C• 13 A or B 14 A 15 B

Hw. Make structured notes: - arguments for vs. against mergers or takeovers- advantages of a raid compared to a takeover bid

Buyouts• 2a Reading

– underline (notes) the arguments in favour of LBOs• many companies + insufficient synergy = assets

worth more than comp. market v.• stockholder value not maximized• central management a hindrance• splitting up and reselling at a profit• asset-stripping – highly lucrative• little risk–debts guaranteed by comp.’s assets:

esp. cash reserves and successful subsidiaries• threat of takeovers – motivates managers

What is missing?

• ~ between• ~ talks• ~ proposal• ~ agreement

• conglomerate ~• defensive ~• friendly ~• horizontal ~• vertical ~

What is missing? MERGER

• a merger between similar banks but to merge with a similar bank

• merger talks• merger proposal n. + n.• merger agreement

merger ≈ integration• conglomerate merger • defensive merger • friendly merger adj. + n.• horizontal merger / integration• vertical merger / integration

What is missing?

friendly ~hostile/unfriendly ~leveraged ~creeping ~~ battle~ bid

What is missing?

employee/staff ~ management ~leveraged ~

What is missing? TAKEOVER

friendly takeoverhostile/unfriendly takeoverleveraged takeovercreeping takeovertakeover battletakeover bid

What is missing? BUYOUT

employee/staff buyoutmanagement buyout (MBO)leveraged buyout (LBO)

2c Writing, MK p 117

• Read the text and use one of the three connectors to fill the gap.

• 1 for example 2 Furthermore

• 3 Yet 4 in other words

• 5 on the contrary 6 Moreover

• 7 for instance 8 Even though

• 9 i.e. 10 however

• 11 Nevertheless 12 Although

• 13 because 14 Consequently