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INTERNATIONAL CORPORATE FINANCE The subject matter of this paper is to discuss the costs and benefits of cross-border takeover merger and acquisition (M&A).

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  • Essay length: 3409 words
  • Submitted: 22/02/2007
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University Degree Finance

The first 200 words of this essay...

INTERNATIONAL CORPORATE FINANCE

MERGER & ACQUISITION

Introduction

The subject matter of this paper is to discuss the costs and benefits of cross-border takeover merger and acquisition (M&A). But first some definitions.

An acquisition is where the acquirer subsumes the target company, thus becoming one legal entity. On the other hand, a merger, extinguishes the identity of both participants, creating a new company. Cross-border M&A is the international dimension of this.

The main theory of merger and acquisition is synergy, that is, one and one makes three. Through synergy, managers create greater value with the integration of two companies, rather than that of their individual parts.

Costs and Benefits

Costs

In a study conducted by Francis Breedon and Francesca Fornasari, 2000, (FX impact of cross-border merger ) they found that the value of the target firm appreciated by 1%, while there was a relative deterioration of the acquirer's value. More specifically, the report found that, in the period immediately after the deal is announced, there is generally a strong upward movement in the target corporation's domestic value (relative to the acquirer's currency). Fifty days after the announcement,

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