Review:Stocks vs. Bonds
http://www.investopedia.com/video/play/stocks-versus-bonds
• Stocks and bonds are the two biggest 1… of
most 2 … . Stocks usually provide a steady 3…,
and bonds tend to ensure a 4…. . Bonds can be
bought from 5…, and a careful selection of
stocks will include 6… . A combination of stocks
and bonds is good for all kinds of investors. For
aggressive investors, bonds may 7... the risk of
stocks and stabilize the 8… of the market, while
stocks can help 9…. investors 10… against the
risk of inflation.
Security (finance)...
... a
financial investment such as
a bond, a share/stock or a
d _ _ _ v _ _ _ v _.
Security (finance)...
... a
financial investment such as
a bond, a share/stock or a
d e r i v a t i v e.
Derivatives
MK, U 18, p 92
• DERIVATIVE (finance) something such as
an option, or a future, based on underlying
assets such as shares, bonds, and
currencies.
Longman Business English Dictionary
Cro =
derivat, derivatni instrument, izvedenica
Derivative: A security whose price is d_ p _ _ _ _ _ t
upon or d_ _ _ _ _ d from one or more underlying
assets. The derivative itself is merely a contract
between two or more parties. Its value is
determined by f _ _ _ _ _ _ _ _ _ s in the underlying
asset. The most common u _ _ _ _ _ _ _ _ g assets
include stocks, bonds, commodities, currencies,
interest rates and market indexes. Most derivatives
are characterized by high leverage.
http://www.investopedia.com/terms/d/derivative.asp
MK, p 92 Vocabulary
1F
2A 3E
4D 5C 6B 7H 8G
Financing capital:
discuss opportunities & threats
• government subsidies
• bank loans
• issuing bonds
• issuing shares 
acquisitions: buyouts and takeovers
Why?
to reinforce your position
to reduce competition
to rationalize production
to diversify products/markets
to gain access to new technology...
→ MK, p 105
Unit 21: Takeovers
Pg 1
• How can companies use their profits?
• Provide synonyms of acquire:
• Explain the difference between takeovers and mergers
• Explain: supply chain
• Explain the difference between horizontal and vertical
integration
• Explain the difference between forward and backward
integration
• 1 Horizontal integration
A enables cost savings
2 Vertical integration
B increases market share
and reduces competition
Unit 21: Takeovers –
Pg 1
• How can companies use their profits?
• Provide synonyms of acquire:
attain, buy, get, purchase, take, take possession of
• Explain the difference between takeovers and mergers
• Explain: supply chain
= the supply chain for most products will
encompass all the companies manufacturing parts for the
product, assembling it, delivering it and selling it.
• Explain the difference between horizontal and vertical
integration
• Explain the difference between forward and backward
integration
• 1 Horizontal integration
A enables cost savings
2 Vertical integration
B increases market share
and reduces competition
Pg 2
• Explain the difference between a raid and a
takeover bid
Advantages
Disadvantages
A raid
A takeover bid
Explain the difference between a friendly and a
hostile bid
●
Vocabulary
• to bid (v irregular: bid, bid)
– to offer to pay a particular price for sth.
The company is bidding 910p a share for control
of AB Ports...
The bidder is interested in...
• a bid (n)
– a price offered to buy sth. such as goods,
property, shares, bonds
(Longman BED)
Takeover bids:
- unwanted / unsolicited / hostile<>friendly bid
Pg. 3
• Why do investment banks encourage
companies to take over other companies?
Pg. 4
•
•
•
•
Explain conglomerate
What does LBO stand for?
L_______d b_____s
Which globally famous Hollywood movie
involves a male character who specializes
in LBOs?
• Do you remember what it is he does?
Pg. 4 cont.
• Explain: undervalued on the stock market
• Explain: market capitalization
• Explain: leveraged
• Explain: asset-stripping
• Why is the risk involved in LBOs small?
HW: Vocabulary, p 106 & complete
TYPES
1.
2.
3.
4.
5.
6.
7.
ACQUISITION / TAKEOVER
FRIENDLY TAKEOVER
HOSTILE TAKEOVER
MERGER
JOINT VENTURE
LEVERAGED BUYOUT
CORPORATE RAID
Cooperation of two or more individuals or
businesses, each agreeing to share profit, loss
and control, in a specific enterprise JOINT
VENTURE
Combining two or more companies to form a new
one
MERGER
Corporate action in which a company buys most, if
not all, of the target company's ownership stakes
in order to assume control of the target firm
ACQUISITION / TAKEOVER
A takeover that a company being taken over
agrees to.
FRIENDLY TAKEOVER
A takeover that a company taken over does not
want and doesn’t agree to. HOSTILE TAKEOVER
Acquisition of another company using borrowed
money (bonds or loans) to meet the cost of
acquisition. Often, the assets of the company
being acquired are used as collateral for the
loans in addition to the assets of the acquiring
company.
LEVERAGED BUYOUT
• buying a large number of shares in a corporation
with undervalued assets to obtain voting rights to
increase share value and thus generate a
CORPORATE RAID
massive return
VOCABULARY
to make a takeover bid
to merge
to use the poison pill
to take over
to find a white knight
to acquire
HW: Handouts: Takeovers and LBOs
Arguments in favor of takeovers and buyouts:
C raiders will use the assets more efficiently, cut costs
and increase shareholder value
E threat of takeovers – motivates managers
F a larger company will have a stronger position on the
market
H innovation is expensive and risky
Arguments against takeovers and buyouts:
A central management is a hindrance
B disincentive to long-term planning or capital investment
D can lead to job losses
G conglomerates may become unmanageable
I traditionally, the best companies have beaten their
competitors rather than buying them
What is missing?
•
•
•
•
~
~
~
~
between
talks
proposal
agreement
• conglomerate ~
• defensive ~
• horizontal ~
• vertical ~
What is missing? MERGER
• a merger between similar banks
but to merge with a similar bank
• merger talks
• merger proposal
n. + n.
• merger agreement
merger ≈ integration
• conglomerate merger
• defensive merger
•
adj. + n.
• horizontal merger / integration
• vertical merger / integration
What is missing?
friendly ~
hostile/unfriendly ~
leveraged ~
creeping ~
~
battle
~
bid
What is missing?
leveraged ~
employee/staff ~
management ~
(LBO)
(MBO)
What is missing? TAKEOVER
friendly takeover
hostile/unfriendly takeover
leveraged takeover
creeping takeover
takeover battle
takeover bid
What is missing? BUYOUT
leveraged buyout (LBO)
employee/staff buyout
management buyout (MBO)
Review: M & A
Mergers and acquisitions
Success
Money
Investments in R&D
Acquisition of other companies
akeovers
uyouts
(t__________,
b_______)
Merger - integration:
elat
Comp. in unr___ed
fields
Conglomerates
Competitors = horizontal m/i
a_________
a
cquisitions
ver Distributors = forward m/i
LBO financed
by debt
ti Suppliers = backward m/i
cal
stripped of assets
& split up
Mergers and acquisitions
Success
Money
Investments in R&D
Acquisition of other companies
(takeovers, buyouts)
Merger - integration:
Comp. in unrelated fields
Conglomerates
Competitors = horizontal m/i
acquisitions
ver Distributors = forward m/i
LBO financed
by debt
ti Suppliers = backward m/i
cal
stripped of assets
& split up