Originally posted by: ElFenix
Originally posted by: LegendKiller
CFA textbooks regarding purchase accounting and M&A activity, not to mention studies I had access to while interning at McKinsey. Don't have the books handy right now.
Unless you are talking private transactions, I have yet to see anything with a premium over 30% and I look quite a bit.
i'm talking about hostiles, which may involve a larger premium. for example, the pantry pride takeover of revlon (which generated massive litigation and a new standard in delaware courts, but don't tell them revlon is a standard because they insist it is the same as the unocal standard, even though it isn't.) hell, there was one in the 80s that didn't happen for almost 200% premium. (the board of the target veto'd it and generated massive litigation)
While there are some extreme cases, the distribution is certainly negatively skewed. Averages, were only as high as you describe during certain corporate raiding peaks, but according to Mergerstat didn't get anywhere that high for an extended period
http://www.gscorp.com/pdf/M&Apoisonpill.pdf
http://www.vernimmen.com/faq/faq.html#Q8
http://bizval.com/publications/articlelibrary/SourceControlPremiumData.htm
Of course a hostile takeover will result in a higher premium, as will fighting the pill, as shown in one study. However, a 25% premium for a company already going down or leveling out is quite a bit, especially when their are dubious economies or "synergies" involved (I hate that fekkin word).
Personally, I used to work for Cendant, one of the last mega conglomerates. The company acquired several companies in the same area which should reasonably result in "synergies" or economies of scale. However, it was a big fat lie and the Street knew it, that's why the stock languished low and the company is now being broken up.
One of the other good excuses for combinations is the internal capital market (one well funded or cheaply funded business funding another through internal monetary sharing), that's another moronic lie.
During my time at CD I saw some of the biggest farces in the world. For example, one company would be forced to use external counsel on a transaction for "relationships", while another supposedly would reap the benefits. Yeah, that's a bunch of hooey, nobody but the lawyers and bankers reaped any benefits.
Of course, Silverman, the CEO, reaped plenty of benefits, getting paid almost $20MM before options, while his investors got stuck holding a big bag of flaming dog poo. I saw them swap companies back and forth with Blackstone where we almost always paid the premium. It's funny how stupid pre-acquisition models can be in their utter zeal and lack of foresight in the giddy nature of the deal. The bankers pitch their stupid stories, spinning webs of lies to garner their chunk of the pie.
The joke is going to be on ATI and AMD stockholders as more investor wealth is flushed down the toilette as the respective CEOs make more money from their "brilliant" idea.
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