THE ROLE OF INVESTMENT

BANKERS
 I. ARRANGING MERGER
• Primary function:
a. Identify firms with excess cash that might
want to buy other firms;
b. Companies that might be willing to be
bought;
c. And firms that might be attractive to others
• They help arrange mergers;
• They help target companies develop and
implement defensive tactics;
• They held value target companies;
• They help finance mergers;
• They invest in the stocks of potential merger
candidates
 ILLEGAL ACTIONS taken by
INVESTMENT BANKERS

x PARKED STOCK – purchasing stocks for a raider

under a guaranteed buy-back agreement
 II. DEVELOPING DEFENSIVE TACTICS
• Changing the by-laws so that the final decision
making power of electing directors and
allowing mergers remain in the hands of
majority;
• Taking measures to make the shareholders of
the Target Company believe that offered price
is reasonably low;
• Raising antitrust issues in the hope that the
Justice Department will intervene;
• Repurchasing stock in the open market in an
effort to push the price above that being offered
by the potential acquirer;
• Getting a white knight who is acceptable to the
target firm’s management to compete with the
potential acquirer;
• Getting a white squire who is friendly to current
management to buy enough of the target firm’s
shares to block the merger;
• Taking a poison pill
• Use of ESOP (Employee Stock Ownership Plan)
 III. ESTABLISHING A FAIR VALUE
• The most crucial and important role played by
investment banking in Merger and Acquisition
is to determine the fair value between the
transferor and the transferee.
• The most crucial and important role played by
investment banking in Merger and Acquisition
is to determine the fair value between the
transferor and the transferee.
 IV. FINANCING MERGERS
• An investment banker offers a financing
package to clients, whether they are acquirers
who need capital to take over companies,
• or target companies trying to finance stock
repurchase plans,
• or other defense against take overs.
 V. ARBITRAGE OPERATIONS
• Arbitrage – generally means simultaneously
buying and selling the same commodity or
security in two different markets at different
prices and pocketing a risk-free return.
 DO MERGERS CREATE VALUE?
It creates value as it by the following ways:
1. Increases market share
2. Enhance product offerings and/or diversify
product line
3. Vertical integration of supply chain
4. Gain access to patents, R&D or technology
5. Potential tax benefits and shareholder value
enhancement