Stock-Swap Mergers (1) NPV Market Prosperity Average Depression Value Two all-equity firms before merger Firm A 80 50 25 60 Firm B 50 40 15 40 Probability 0.5 0.3 0.2 After Merger Firm AB 130 90 40 100 slide 15
slide 15 Stock-Swap Mergers (1) Swap Mergers (1) NPV Market Prosperity Average Depression Value Two all- equity firms before merger Firm A 80 50 25 60 Firm B 50 40 15 40 Probability 0.5 0.3 0.2 After Merger Firm AB 130 90 40 100
Stock-Swap Mergers(2) NPV Market Prosperity Average Depression Value Firm A,equity and risk debt before merger Firm B,all-equity firms before merger Firm A 80 50 25 60 Debt 40 40 25 37 Equity 40 10 0 23 Firm B 50 40 15 40 slide 16
slide 16 Stock-Swap Mergers (2) Swap Mergers (2) NPV Market Prosperity Average Depression Value Firm A, equity and risk debt before merger Firm B, all- equity firms before merger Firm A 80 50 25 60 Debt 40 40 25 37 Equity 40 10 0 23 Firm B 50 40 15 40
Stock-Swap Mergers (3) NPV Market Prosperity Average Depression Value After merger Firm AB 130 90 40 100 Debt 40 40 40 40 Equity 90 50 0 60 Bondholders in the aggregate will usually be helped by M&A. -Stockholders will be hurt. slide 17
slide 17 Stock-Swap Mergers (3) Swap Mergers (3) NPV Market Prosperity Average Depression Value After merger Firm AB 130 90 40 100 Debt 40 40 40 40 Equity 90 50 0 60 Bondholders in the aggregate will usually be helped by M&A. Stockholders will be hurt