Economic Analysis of Takeovers and Mergers and the Evaluation of Takeover Bids

Vladimir Bukvič^1,

¹GEA College Faculty of Entrepreneurship, Ljubljana, Slovenia

Cite this paper:
Vladimir Bukvič. Economic Analysis of Takeovers and Mergers and the Evaluation of Takeover Bids. International Journal of Econometrics and Financial Management. 2022; 10(1):1-12. doi: 10.12691/ijefm-10-1-1

Abstract

As some of the most relevant processes of financial and organizational corporate restructuring, takeovers, mergers and acquisitions have been drawing increasing attention among the professional public and researchers alike. The author focuses on the economic analysis of these transactions and the evaluation of takeover bids. First, he sketches out the theoretical framework of takeovers and mergers, which is followed by an economic analysis of mergers. In his study, the author uses the “discounted cash flow analysis” method and the “market multiple analysis” method. The financial evaluation of a specific takeover, comprising a concrete numerical case study, can be considered as the added value of the paper. Net present value is chosen to pinpoint the benefits of a takeover. Determining the bidding price for purchasing the target firm deserves particular attention. With some concrete numerical cases, the author illustrates certain differences in the evaluation of a takeover bid when different funding is taken into account, such as a share offer versus a cash offer. Furthermore, a few calculations regarding the estimation of the economic effects of these realized transactions are demonstrated as well. The author concludes his study by stressing the main findings, and he advocates the thesis that a thorough preliminary economic analysis has to be carried out before the management of firms implements a takeover and/or merger.

Keywords:
evaluation of takeover bids economic analysis of mergers funding of takeover market capitalisation economic effects of takeovers and mergers

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