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107-470: The European banking union refers to the transfer of responsibility for banking policy from the member state-level to the union-wide level in several EU member states , initiated in 2012 as a response to the 2009 Eurozone crisis . The motivation for the banking union was the fragility of numerous banks in the Eurozone , and the identification of a vicious circle between credit conditions for these banks and

214-409: A Single Resolution Fund (SRF) to finance resolution operations. The SRF is valued at 1% of covered deposits of all credit institutions authorised in the participating member states (estimated at 55 billion euros), to be filled with contributions by participating banks during an eight-year establishment phase ending on 31 December 2023. A key motivation is to alleviate the impact of failing banks on

321-689: A monopoly ", and the Hart–Scott–Rodino Act requires notifying the U.S. Department of Justice 's Antitrust Division and the Federal Trade Commission about any merger or acquisition over a certain size. An acquisition/takeover is the purchase of one business or company by another company or other business entity. Specific acquisition targets can be identified through myriad avenues, including market research, trade expos, sent up from internal business units, or supply chain analysis. Such purchase may be of 100%, or nearly 100%, of

428-589: A European Deposit Insurance Scheme (EDIS), but this did not get traction in the ensuing legislative process, even after the Commission in October 2017 watered down its project by suggesting a partial implementation. In June 2019, the European Commission conceded that an entirely new proposal might be needed to bring the vision of European deposit insurance to fruition. One reason for the failure of

535-500: A banking union encompassing direct recapitalisation of banks by the European Stability Mechanism , a common financial supervisor, a common bank resolution scheme and a deposit guarantee fund. Second, the proposals for a fiscal union included a strict supervision of eurozone countries' budgets, and calls for eurobonds in the medium term. Third, it called for more integration on economic policy, and fourth, for

642-405: A business retain just a handful of key players that would have otherwise left. Organizations should move rapidly to re-recruit key managers. It's much easier to succeed with a team of quality players that one selects deliberately rather than try to win a game with those who randomly show up to play. Mergers and acquisitions often create brand problems, beginning with what to call the company after

749-569: A business, which accrues to both categories of stakeholders, is called the Enterprise Value (EV), whereas the value which accrues just to shareholders is the Equity Value (also called market capitalization for publicly listed companies). Enterprise Value reflects a capital structure neutral valuation and is frequently a preferred way to compare value as it is not affected by a company's, or management's, strategic decision to fund

856-622: A close cooperation with the Croatian central bank. The close cooperation entered into force on 1 October 2020. The Croatian National Bank thus receives a representative with voting rights on the ECB Supervisory Board and on 1 October 2020, the European Central Bank started supervising the larger Croatian banks after the completion of a significance assessment process. Croatia joined the eurozone, and thus became

963-600: A declaration of intent, "We affirm that it is imperative to break the vicious circle between banks and sovereigns," which was later repeated in numerous successive communications of the European Council . It followed by announcing two major policy initiatives: first, the creation of European Banking Supervision under the European Central Bank 's central authority, using Article 127(6) of the Treaty on

1070-444: A degree of convergence on this agenda when declaring on 4 June 2012, that European leaders "will also talk about to what extent we have to put systemically (important) banks under a specific European oversight". Another milestone was the report delivered on 26 June 2012, by European Council President Herman Van Rompuy , which called for deeper integration in the Eurozone and proposed major changes in four areas. First, it called for

1177-406: A financial crisis can have a severe impact on the economic infrastructure most of us rely on: investments, mortgage loans, business growth opportunities, employment, and government revenue and expenditure. The banking union can be seen as a bulwark against future financial crises. It will also ensure that the impact is less severe if banks do, nevertheless, become distressed. In addition, there are

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1284-707: A full member of the European banking union, as of 1 January 2023. The Danish government announced in April 2015 its intention to join the European Banking Union. Although the Ministry of Justice found that the move did not entail any transfer of sovereignty and thus would not automatically require a referendum, the Danish People's Party , Red Green Alliance and Liberal Alliance oppose joining

1391-473: A function of their acquisition activity. Therefore, additional motives for merger and acquisition that may not add shareholder value include: The M&A process itself is a multifaceted which depends upon the type of merging companies. The M&A process results in the restructuring of a business's purpose, corporate governance and brand identity. An arm's length merger is a merger: ″The two elements are complementary and not substitutes. The first element

1498-433: A larger and/or longer-established company and retain the name of the latter for the post-acquisition combined entity. This is known as a reverse takeover . Another type of acquisition is the reverse merger , a form of transaction that enables a private company to be publicly listed in a relatively short time frame. A reverse merger is a type of merger where a privately held company, typically one with promising prospects and

1605-579: A legal and financial point of view, both mergers and acquisitions generally result in the consolidation of assets and liabilities under one entity, and the distinction between the two is not always clear. Most countries require mergers and acquisitions to comply with antitrust or competition law . In the United States , for example, the Clayton Act outlaws any merger or acquisition that may "substantially lessen competition" or "tend to create

1712-453: A major structural policy initiative that has played a significant role in addressing the Eurozone crisis . The single rulebook is a name for the EU laws that collectively govern the financial sector across the entire European Union. The provisions of the single rulebook are set out in three main legislative acts: The first pillar of the banking union is European Banking Supervision, also known as

1819-426: A merger or acquisition transaction can range from political to tactical. Ego can drive choice just as well as rational factors such as brand value and costs involved with changing brands. Beyond the bigger issue of what to call the company after the transaction comes the ongoing detailed choices about what divisional, product and service brands to keep. The detailed decisions about the brand portfolio are covered under

1926-444: A need for financing, acquires a publicly listed shell company that has few assets and no significant business operations. The combined evidence suggests that the shareholders of acquired firms realize significant positive "abnormal returns," while shareholders of the acquiring company are most likely to experience a negative wealth effect. Most studies indicate that M&A transactions have a positive net effect, with investors in both

2033-404: A number of special factors that make it particularly interesting for Denmark to participate in the banking union. Some Danish banks and mortgage banks are very large relative to the size of the economy. In Danmarks Nationalbank's assessment, supervision of the largest Danish banks and mortgage banks would be strengthened in the banking union. Danmarks Nationalbank also finds that participation in

2140-589: A representative with voting rights on the ECB Supervisory Board and on 1 October 2020, the European Central Bank started supervising the larger Bulgarian banks after the completion of a significance assessment process. Croatia likewise submitted a request for closer cooperation in May 2019, as part of its efforts to join the ERM II. Croatia was expected to join the European Banking Union and ERM II by July 2020. The ECB governing council decided on 24 June 2020 to establish

2247-434: A situation where one company splits into two, generating a second company which may or may not become separately listed on a stock exchange. As per knowledge-based views, firms can generate greater values through the retention of knowledge-based resources which they generate and integrate. Extracting technological benefits during and after acquisition is an ever-challenging issue because of organizational differences. Based on

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2354-550: A special committee of independent directors; and 2) conditioned on an affirmative vote of a majority of the minority stockholders, the business judgment standard of review should presumptively apply, and any plaintiff ought to have to plead particularized facts that, if true, support an inference that, despite the facially fair process, the merger was tainted because of fiduciary wrongdoing.″ A Strategic merger usually refers to long-term strategic holding of target (Acquired) firm. This type of M&A process aims at creating synergies in

2461-595: A speech before the European Parliament that "Ensuring a well-functioning EMU implies strengthening banking supervision and resolution at European level". Suggestions for more integrated European banking supervision were further discussed during an informal European Council meeting on 23 May 2012, and appear to have been backed at the time by French President François Hollande , Italian Prime Minister Mario Monti , and European Commission President José Manuel Barroso . German Chancellor Angela Merkel signalled

2568-468: A total value of US$ 2,164.4 bil. Some of the largest mergers of equals took place during the dot-com bubble of the late 1990s and in the year 2000: AOL and Time Warner (US$ 164 bil.), SmithKline Beecham and Glaxo Wellcome (US$ 75 bil.), Citicorp and Travelers Group (US$ 72 bil.). More recent examples this type of combinations are DuPont and Dow Chemical (US$ 62 bil.) and Praxair and Linde (US$ 35 bil.). An analysis of 1,600 companies across industries revealed

2675-456: Is friendly or hostile . Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful. "Serial acquirers" appear to be more successful with M&A than companies who make acquisitions only occasionally (see Douma & Schreuder, 2013, chapter 13). The new forms of buy out created since the crisis are based on serial type acquisitions known as an ECO Buyout which

2782-478: Is a co-community ownership buy out and the new generation buy outs of the MIBO (Management Involved or Management & Institution Buy Out) and MEIBO (Management & Employee Involved Buy Out). Whether a purchase is perceived as being "friendly" or "hostile" depends significantly on how the proposed acquisition is communicated to and perceived by the target company's board of directors, employees, and shareholders. It

2889-426: Is a triangular merger, where the target company merges with a shell company wholly owned by the buyer, thus becoming a subsidiary of the buyer. In a "forward triangular merger ", the target company merges into the subsidiary, with the subsidiary as the surviving company of the merger; a "reverse triangular merger" is similar except that the subsidiary merges into the target company, with the target company surviving

2996-425: Is between two competitors in the same industry. A vertical merger occurs when two firms combine across the value chain, such as when a firm buys a former supplier (backward integration) or a former customer (forward integration). When there is no strategic relatedness between an acquiring firm and its target, this is called a conglomerate merger (Douma & Schreuder, 2013). The form of merger most often employed

3103-399: Is combined into another entity by operation of the corporate law statute(s) of the jurisdiction of the merging entities. In a transaction structured as a merger or an equity purchase, the buyer acquires all of the assets and liabilities of the acquired entity. In a transaction structured as an asset purchase, the buyer and seller agree on which assets and liabilities the buyer will acquire from

3210-425: Is complete, the parties may proceed to draw up a definitive agreement, known as a "merger agreement", "share purchase agreement," or "asset purchase agreement" depending on the structure of the transaction. Such contracts are typically 80 to 100 pages long and focus on five key types of terms: Following the closing of a deal, adjustments may be made to some of the provisions outlined in the purchase agreement, such as

3317-426: Is important because the directors have the capability to act as effective and active bargaining agents, which disaggregated stockholders do not. But, because bargaining agents are not always effective or faithful, the second element is critical, because it gives the minority stockholders the opportunity to reject their agents' work. Therefore, when a merger with a controlling stockholder was: 1) negotiated and approved by

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3424-412: Is normal for M&A deal communications to take place in a so-called "confidentiality bubble," wherein the flow of information is restricted pursuant to confidentiality agreements. In the case of a friendly transaction, the companies cooperate in negotiations; in the case of a hostile deal, the board and/or management of the target is unwilling to be bought or the target's board has no prior knowledge of

3531-415: Is possible only when resources are exchanged and managed without affecting their independence. A corporate acquisition can be structured legally as either an "asset purchase" in which the seller sells business assets and liabilities to the buyer, an "equity purchase" in which the buyer purchases equity interests in a target company from one or more selling shareholders or a "merger" in which one legal entity

3638-464: Is provided by full-service investment banks- who often advise and handle the biggest deals in the world (called bulge bracket ) - and specialist M&A firms, who provide M&A only advisory, generally to mid-market, select industries and SBEs. Highly focused and specialized M&A advice investment banks are called boutique investment banks . The dominant rationale used to explain M&;A activity

3745-487: Is that acquiring firms seek improved financial performance or reduce risk. The following motives are considered to improve financial performance or reduce risk: Megadeals—deals of at least one $ 1 billion in size—tend to fall into four discrete categories: consolidation, capabilities extension, technology-driven market transformation, and going private. On average and across the most commonly studied variables, acquiring firms' financial performance does not positively change as

3852-527: Is the government’s position that there is a need for greater clarity concerning a number of important issues before we can determine our position on Danish participation: Sweden’s position is unclear; work on additional elements of the Banking Union is still ongoing, and the United Kingdom’s future relationship with the EU remains to be finalised. In addition, there is still uncertainty concerning how

3959-408: The European Central Bank 's Banking Union. Nordea's chairman of the board, Björn Wahlroos, stated that the bank wanted to put itself "on a par with its European peers" in justifying the relocation from Stockholm to Helsinki. The main aim for joining the European Banking Union would be to protect Swedish banks against being "too big to fail". Sweden's Financial Markets Minister Per Bolund said that

4066-534: The Hudson's Bay Company merged with the rival North West Company . The Great Merger Movement was a predominantly U.S. business phenomenon that happened from 1895 to 1905. During this time, small firms with little market share consolidated with similar firms to form large, powerful institutions that dominated their markets, such as the Standard Oil Company , which at its height controlled nearly 90% of

4173-662: The International Monetary Fund , but with limited policy action beyond the creation of the Committee of European Banking Supervisors in 2004. Deterioration of credit conditions during the Eurozone crisis , and specifically the contagion of financial instability to larger member states of the euro area from the middle of 2011, led to renewed thinking about the interdependence between banking policy, financial integration, and financial stability. On 17 April 2012, IMF managing director Christine Lagarde renewed

4280-614: The Single Resolution Mechanism (SRM). Since the EU treaties only give the ECB jurisdiction over eurozone states, legally it cannot enforce measures in non-eurozone states. This would prevent the ECB from effectively carrying out its supervisory role in these states. Under the European Treaties, non-eurozone countries do not have the right to vote in the ECB's Governing Council and in return are not bound by

4387-584: The euro area . Other non-euro member states may join the European Banking Union under a procedure known as close cooperation. Bulgaria and Croatia initiated requests for close cooperation, in July 2018 and May 2019 respectively. Following a formal approval of these requests in June 2020, the European Central Bank started supervising the larger Bulgarian and Croatian banks on 1 October 2020. In December 2023 Italy 's lower house of parliament voted against reforming

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4494-684: The eurozone .” EU member states Too Many Requests If you report this error to the Wikimedia System Administrators, please include the details below. Request from 172.68.168.237 via cp1104 cp1104, Varnish XID 204960632 Upstream caches: cp1104 int Error: 429, Too Many Requests at Thu, 28 Nov 2024 07:59:29 GMT Mergers and acquisitions Technically, a merger is the legal consolidation of two business entities into one, whereas an acquisition occurs when one entity takes ownership of another entity's share capital , equity interests or assets . From

4601-406: The sovereign credit of their respective home countries ("bank-sovereign vicious circle"). In several countries, private debts arising from a property bubble were transferred to the respective sovereign as a result of banking system bailouts and government responses to slowing economies post-bubble. Conversely, weakness in sovereign credit resulted in deterioration of the balance sheet position of

4708-574: The Banking Union, a referendum on the issue should be held. Since the rise in resolution fund fees for Swedish banks to protect against banking failures in 2017, resulting in the move of the headquarters of the biggest bank in Sweden and the entire Nordic region , Nordea , from Stockholm to the Finnish capital Helsinki , which lies within the eurozone and therefore also within the European Banking Union, there has been discussion about Sweden joining

4815-820: The Council"). In addition, an intergovernmental agreement (IGA) was made to govern the specifics of how the SRF would be financed ("Agreement on the transfer and mutualisation of contributions to the Single Resolution Fund"). The SRM Regulation was proposed by the European Commission in July 2013. The Parliament and the Council of the European Union reached an agreement on the Regulation on 20 March 2014. The European Parliament approved

4922-497: The ECB provided that they have mechanisms in place to make ECB measures binding upon national authorities. A "close cooperation" agreement can be ended by the ECB or by the participating non-eurozone member state. The text of the SRM stipulates that all states participating in the SSM, including those non-eurozone states with a "close cooperation" agreement, will automatically be participants in

5029-454: The ECB's decisions. Non-eurozone countries cannot become full members of the SSM and SRM in the sense of having the same rights and obligations as eurozone members. However, non-eurozone EU member states can enter into a "close cooperation agreement" on the SSM with the ECB. The banks in that country are then supervised by the ECB and the country gains a seat in the ECB Supervisory Board . It would allow banks in that country to be supervised by

5136-462: The ECB, this is carried out in co-operation with national supervisors. The banking groups designated by the SSM as "significant institutions", including all those with assets greater than 30 billion euros or 20% of the GDP of the member state where they are based, are directly supervised by the ECB. Smaller banks, known in the banking union as "less significant institutions", remain directly monitored by

5243-560: The ECB. The SRM was enacted through a legislative act known as the SRM Regulation ("Regulation of the European Parliament and of the Council establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Bank Resolution Fund and amending Regulation (EU) No 1093/2010 of the European Parliament and of

5350-580: The EDIS proposal is that it embedded an imbalanced approach to breaking the bank-sovereign vicious circle, as it only tackled one key component of that vicious circle – the fact that deposit insurance is only provided at the national level – while leaving intact another one – namely, the continued existence of concentrated domestic sovereign exposures in most euro-area banks, or in other words, the fact that euro-area banks appear to give preference to their home country in their allocation of credit to governments despite

5457-689: The European Banking Union and collectively the three won enough seats in the subsequent June 2015 election to prevent the Folketing (the Danish parliament) from joining without the approval through a referendum. As of July 2017, Denmark was studying joining, with a decision expected in the autumn of 2019. On 10 July 2017, the Danish Central Bank (Danmarks Nationalbank) published a statement in English on its official website, stating under

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5564-554: The European Banking Union within a year. Bulgaria sent a letter to the Eurogroup in July 2018 on its desire to participate in ERM II, and commitment to enter into a "close cooperation" agreement with the Banking Union. The ECB governing council decided on 24 June 2020 to establish a close cooperation with the Bulgarian central bank. The close cooperation entered into force on 1 October 2020. The Bulgarian National Bank thus receives

5671-587: The Functioning of the European Union ; and second, "when an effective single supervisory mechanism is established," the possibility of direct bank recapitalisation by the European Stability Mechanism , possibly with retroactive effect in the case of Spain and Ireland. In the following weeks, the German government quickly backtracked on the commitment about direct bank recapitalisation by the ESM. In September 2012, it

5778-800: The Great Merger Movement were able to keep their dominance in their respective sectors through 1929, and in some cases today, due to growing technological advances of their products, patents , and brand recognition by their customers. There were also other companies that held the greatest market share in 1905 but at the same time did not have the competitive advantages of the companies like DuPont and General Electric . These companies such as International Paper and American Chicle saw their market share decrease significantly by 1929 as smaller competitors joined forces with each other and provided much more competition. The companies that merged were mass producers of homogeneous goods that could exploit

5885-746: The Regulation on 15 April, and the Council followed suit on 14 July 2014, leading to its entry into force on 19 August 2014. The Intergovernmental Agreement (IGA) was signed by all 26 EU member states on 21 May 2014, excluding Sweden. Its entry into force was conditional on the Agreement being ratified by states representing 90% of the weighted vote of SSM and SRM participating states. This was achieved on 30 November 2015, when all participating states apart from Greece and Luxembourg had ratified. Greece ratified on 7 December. The agreement entered into force on 1 January 2016 for SSM and SRM participating states. Luxembourg subsequently ratified on 11 January 2016. From

5992-466: The SRM entered into full force on 1 January 2015. Most accounts of banking union view it as incomplete in the absence of a European deposit insurance . The European Commission made a legislative proposal for a Deposit Insurance Scheme in November 2015, but it has not been adopted by the EU co-legislators. Until October 2020, the geographical scope of the European Banking Union was identical to that of

6099-531: The SRM. The first request to enter into "close cooperation" was made by Bulgaria on 18 July 2018. Bulgaria's Finance Minister, Vladislav Goranov , stated in July 2017 that his country would not participate prior to euro adoption. However, after pressure from the ECB to begin participating in the European Banking Union prior to joining the European Exchange Rate Mechanism (ERM II), Goranov said in June 2018 that Bulgaria would join

6206-564: The Single Supervisory Mechanism (SSM), which grants the European Central Bank (ECB) a leading supervisory role over banks in the euro area. Participation is automatic for all euro area member states, and optional for other EU member states through the process known as "close cooperation" established by the SSM Regulation of October 2013. While all banks in participating states will be under the supervision of

6313-488: The absence of exchange rate risk within the monetary union. The financial and political salience of this challenge, widely referred to as "regulatory treatment of sovereign exposures" (RTSE), was not immediately recognized in the early debates about the banking union. In 2015-2016 a high-level working group of the EFC chaired by Per Callesen  [ dk ] explored options to tackle concentrated exposures, but no consensus

6420-450: The acquiring company's stock, issued to the shareholders of the acquired company at a given ratio proportional to the valuation of the latter. They receive stock in the company that is purchasing the smaller subsidiary. There are some elements to think about when choosing the form of payment. When submitting an offer, the acquiring firm should consider other potential bidders and think strategically. The form of payment might be decisive for

6527-512: The acquisition so the team can focus on projects for their new employer). In recent years, these types of acquisitions have become common in the technology industry, where major web companies such as Facebook , Twitter , and Yahoo! have frequently used talent acquisitions to add expertise in particular areas to their workforces. Merger of equals is often a combination of companies of a similar size. Since 1990, there have been more than 625 M&A transactions announced as mergers of equals with

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6634-514: The assets and liabilities that pertain solely to the unit being sold, determining whether the unit relies on services from other parts of the seller's organization, transferring employees, moving permits and licenses, and safeguarding against potential competition from the seller in the same business sector after the transaction is completed. From an economic point of view, business combinations can also be classified as horizontal, vertical and conglomerate mergers (or acquisitions). A horizontal merger

6741-581: The assets or ownership equity of the acquired entity. A consolidation/amalgamation occurs when two companies combine to form a new enterprise altogether, and neither of the previous companies remains independently owned. Acquisitions are divided into "private" and "public" acquisitions, depending on whether the acquiree or merging company (also termed a target ) is or is not listed on a public stock market . Some public companies rely on acquisitions as an important value creation strategy. An additional dimension or categorization consists of whether an acquisition

6848-457: The banking sector, not least because of high domestic sovereign exposures of the banks. As of mid-2020, the Banking union of the European Union largely consists of two main initiatives, European Banking Supervision and the Single Resolution Mechanism , which are based upon the EU's "single rulebook" or common financial regulatory framework. The SSM took up its authority on 4 November 2014, and

6955-403: The banking union would be an advantage if a large Danish bank or mortgage bank ever became distressed. A single, powerful resolution authority would then be better equipped to minimise the adverse effects on the economy and the financial system without the use of public funds. A level playing field across borders would also enhance competition in the Danish banking market, which would only be to

7062-594: The benefit of Danish households and firms. Furthermore, as a member of the banking union, Denmark would have a say when European rules, standards and practices are being established. Inter alia, this means that the mortgage credit model would be more strongly positioned inside than outside the banking union. In a press release from 19 December 2019, the Danish Ministry of Industry, Business and Financial Affairs quoted Danish Minister for Industry, Business and Financial Affairs, Simon Kollerup , as saying: ... It

7169-446: The business either through debt, equity, or a portion of both. Five common ways to "triangulate" the enterprise value of a business are: Professionals who value businesses generally do not use just one method, but a combination. Valuations implied using these methodologies can prove different to a company's current trading valuation. For public companies, the market based enterprise value and equity value can be calculated by referring to

7276-482: The buyer and target companies seeing positive returns. This suggests that M&A creates economic value, likely by transferring assets to more efficient management teams who can better utilize them. (See Douma & Schreuder, 2013, chapter 13). There are also a variety of structures used in securing control over the assets of a company, which have different tax and regulatory implications: The terms " demerger ", " spin-off " and "spin-out" are sometimes used to indicate

7383-469: The buyer. Hence, the analysis should be done from the acquiring firm's point of view. Synergy-creating investments are started by the choice of the acquirer, and therefore they are not obligatory, making them essentially real options . To include this real options aspect into analysis of acquisition targets is one interesting issue that has been studied lately. See also contingent value rights . Mergers are generally differentiated from acquisitions partly by

7490-462: The company's current account), liquidity ratios might decrease. On the other hand, in a pure stock for stock transaction (financed from the issuance of new shares), the company might show lower profitability ratios (e.g. ROA). However, economic dilution must prevail towards accounting dilution when making the choice. The form of payment and financing options are tightly linked. If the buyer pays cash, there are three main financing options: M&A advice

7597-469: The company's share price and components on its balance sheet. The valuation methods described above represent ways to determine value of a company independently from how the market currently, or historically, has determined value based on the price of its outstanding securities. Most often value is expressed in a Letter of Opinion of Value (LOV) when the business is being valued informally. Formal valuation reports generally get more detailed and expensive as

7704-496: The conferral of specific tasks on the European Central Bank pursuant to Council Regulation (EU) No 1024/2013), which in practice gave the European Parliament a veto and thus a significant role in the legislative process. Any future modification of the SSM Regulation may also require unanimity of the council. The European Commission released their proposal for the SSM in September 2012. The European Parliament and Council agreed on

7811-420: The content analysis of seven interviews, the authors concluded the following components for their grounded model of acquisition: An increase in acquisitions in the global business environment requires enterprises to evaluate the key stake holders of acquisitions very carefully before implementation. It is imperative for the acquirer to understand this relationship and apply it to its advantage. Employee retention

7918-430: The control of the buyer modified. If the issuance of shares is necessary, shareholders of the acquiring company might prevent such capital increase at the general meeting of shareholders. The risk is removed with a cash transaction. Then, the balance sheet of the buyer will be modified and the decision maker should take into account the effects on the reported financial results. For example, in a pure cash deal (financed from

8025-408: The country was conducting a study on joining, which was planned to be completed by 2019. Critics argue that Sweden will be disadvantaged by joining the banking union because it does not have any voting rights, as it is not a member of the eurozone . Swedish Finance Minister Madgalena Andersson stated: “ You can't ignore the fact that the decision-making can be a little problematic for countries not in

8132-472: The earlier advocacy of fiscal union by various observers and policymakers in the same context, especially in Germany in the second half of 2011. According to Véron, the expression had been suggested to him by European Commission official Maarten Verwey. From April 2012, the expression was later popularised by the financial press, initially with reference to its use by Bruegel scholars. From June 2012 onward, it

8239-405: The efficiencies of large volume production. In addition, many of these mergers were capital-intensive. Due to high fixed costs, when demand fell, these newly merged companies had an incentive to maintain output and reduce prices. However more often than not mergers were "quick mergers". These "quick mergers" involved mergers of companies with unrelated technology and different management. As a result,

8346-468: The efficiency gains associated with mergers were not present. The new and bigger company would actually face higher costs than competitors because of these technological and managerial differences. Thus, the mergers were not done to see large efficiency gains, they were in fact done because that was the trend at the time. Companies which had specific fine products, like fine writing paper, earned their profits on high margin rather than volume and took no part in

8453-619: The euro zone bailout fund ESM preventing parliament from approving the same reform text in the six months to come, and blocking implementation of the Single Resolution Mechanism . The earliest recorded public use of the expression "banking union" in the Eurozone crisis context was in an article by scholar Nicolas Véron published near-simultaneously by Bruegel , the Peterson Institute for International Economics and VoxEU.org (a website of CEPR ) in December 2011. It paralleled

8560-583: The failure of prior attempts to create a European framework for banking supervision, including during the negotiation of the Maastricht Treaty in 1991 and of the Treaty of Nice in 2000. During the 2000s, the emergence of pan-European banking groups through cross-border mergers and acquisitions (such as the purchases of Abbey National by Santander Group , HypoVereinsbank by UniCredit and Banca Nazionale del Lavoro by BNP Paribas ) led to renewed calls for banking policy integration, not least by

8667-473: The global oil refinery industry. It is estimated that more than 1,800 of these firms disappeared into consolidations, many of which acquired substantial shares of the markets in which they operated. The vehicle used were so-called trusts . In 1900 the value of firms acquired in mergers was 20% of GDP . In 1990 the value was only 3% and from 1998 to 2000 it was around 10–11% of GDP. Companies such as DuPont , U.S. Steel , and General Electric that merged during

8774-464: The institution's earlier calls for banking policy integration by specifically referring to the need for the euro monetary union to be "...supported by stronger financial integration which our analysis suggests be in the form of unified supervision, a single bank resolution authority with a common backstop, and a single deposit insurance fund." The following week on 25 April 2012, European Central Bank President Mario Draghi echoed this call by noting in

8881-440: The long run by increased market share, broad customer base, and corporate strength of business. A strategic acquirer may also be willing to pay a premium offer to target firm in the outlook of the synergy value created after M&A process. The term "acqui-hire" is used to refer to acquisitions where the acquiring company seeks to obtain the target company's talent, rather than their products (which are often discontinued as part of

8988-440: The merger. Mergers, asset purchases and equity purchases are each taxed differently, and the most beneficial structure for tax purposes is highly situation-dependent. Under the U.S. Internal Revenue Code , a forward triangular merger is taxed as if the target company sold its assets to the shell company and then liquidated, them whereas a reverse triangular merger is taxed as if the target company's shareholders sold their stock in

9095-429: The most value from a business assessment, objectives should be clearly defined and the right resources should be chosen to conduct the assessment in the available timeframe. As synergy plays a large role in the valuation of acquisitions, it is paramount to get the value of synergies right; as briefly alluded to re DCF valuations. Synergies are different from the "sales price" valuation of the firm, as they will accrue to

9202-406: The national supervisory authorities of the member state in which they are established, even though the ECB has indirect supervisory oversight and also the authority to take over direct supervision of any bank. The ECB's monitoring regime includes conducting stress tests on financial institutions. If problems are found, the ECB will have the ability to conduct early intervention in the bank to rectify

9309-484: The new Basel recommendations will be implemented in the EU, which can have significant impact on the framework conditions for the Danish financial sector, regardless of whether we participate in the Banking Union or not. The government will return to the issue when there is greater clarity on these issues, and when we have had a good public debate on possible Danish participation. It is the government’s position that if we end up recommending that Denmark should participate in

9416-417: The offer. Hostile acquisitions can, and often do, ultimately become "friendly" as the acquirer secures endorsement of the transaction from the board of the acquiree company. This usually requires an improvement in the terms of the offer and/or through negotiation. "Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of

9523-446: The purchase price. These adjustments are subject to enforceability issues in certain situations. Alternatively, certain transactions use the 'locked box' approach, where the purchase price is fixed at signing and based on the seller's equity value at a pre-signing date and an interest charge. The assets of a business are pledged to two categories of stakeholders: equity owners and owners of the business' outstanding debt. The core value of

9630-446: The rewards for M&A activity were greater for consumer products companies than the average company. For the period 2000–2010, consumer products companies turned in an average annual TSR of 7.4%, while the average for all companies was 4.8%. Given that the cost of replacing an executive can run over 100% of his or her annual salary, any investment of time and energy in re-recruitment will likely pay for itself many times over if it helps

9737-430: The section entitled “ Danmarks Nationalbank's views on Danish participation ”: Danmarks Nationalbank believes that Denmark should join the European banking union. In short, it is Danmarks Nationalbank's assessment that participation will benefit Danish households and firms. Generally speaking, the banking union will make a positive contribution to financial stability. This is relevant to all of us. As we saw after 2008,

9844-448: The seller. Asset purchases are common in technology transactions in which the buyer is most interested in particular intellectual property but does not want to acquire liabilities or other contractual relationships. An asset purchase structure may also be used when the buyer wishes to buy a particular division or unit of a company that is not a separate legal entity. Divestitures present a variety of unique challenges, such as identifying

9951-442: The seller. With pure cash deals, there is no doubt on the real value of the bid (without considering an eventual earnout). The contingency of the share payment is indeed removed. Thus, a cash offer preempts competitors better than securities. Taxes are a second element to consider and should be evaluated with the counsel of competent tax and accounting advisers. Third, with a share deal the buyer's capital structure might be affected and

10058-426: The situation, such as by setting capital or risk limits or by requiring changes in management. The SSM was enacted through Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, known as the SSM Regulation. Significantly, since this EU Regulation is based on Article 127(6) TFEU , it

10165-414: The size of a company increases, but this is not always the case as the nature of the business and the industry it is operating in can influence the complexity of the valuation task. Objectively evaluating the historical and prospective performance of a business is a challenge faced by many. Generally, parties rely on independent third parties to conduct due diligence studies or business assessments. To yield

10272-423: The sovereign debt of individual states and thus to mitigate the bank-sovereign vicious circle. All EU member states participating in the SSM, any those non-euro countries with a "close cooperation" agreement, are also participants in the SRM. The Single Resolution Board , a new agency established as the institutional hub of the SRM, is directly responsible for the resolution of significant institutions supervised by

10379-573: The specifics of the SSM on 19 March 2013. The Parliament voted in favour of the SSM and EBA Regulations on 12 September 2013, and the Council of the European Union gave their approval on 15 October 2013. As set in the SSM Regulation, the ECB assumed its supervisory authority on 4 November 2014. The Single Resolution Mechanism (SRM) was created to centrally implement the Bank Recovery and Resolution Directive in banking union countries, including

10486-422: The start in early 2012, advocates of banking union have insisted on the need to set up a European deposit insurance in order to break the bank-sovereign vicious circle. This component of the banking union has been initially more controversial than the SSM or SRM, however, because of the strong signal it entails of cross-border risk-sharing. In November 2015, the European Commission published a legislative proposal for

10593-454: The strengthening of democratic legitimacy and accountability. The latter is generally envisioned as giving supervisory powers to the European Parliament in financial matters and in reinforcing the political union. A new treaty would be required to enact the proposed changes. The key moment of decision was a summit of euro area heads of state and government on 28–29 June 2012. The summit's brief statement, published early on 29 June, began with

10700-490: The target company to the buyer. The documentation of an M&A transaction often begins with a letter of intent . The letter of intent generally does not bind the parties to commit to a transaction, but may bind the parties to confidentiality and exclusivity obligations so that the transaction can be considered through a due diligence process involving lawyers, accountants, tax advisors, and other professionals, as well as business people from both sides. After due diligence

10807-658: The topic brand architecture . Most histories of M&A begin in the late 19th century United States. However, mergers coincide historically with the existence of companies. In 1708, for example, the East India Company merged with an erstwhile competitor to restore its monopoly over the Indian trade. In 1784, the Italian Monte dei Paschi and Monte Pio banks were united as the Monti Reuniti. In 1821,

10914-547: The transaction and going down into detail about what to do about overlapping and competing product brands. Decisions about what brand equity to write off are not inconsequential. And, given the ability for the right brand choices to drive preference and earn a price premium, the future success of a merger or acquisition depends on making wise brand choices. Brand decision-makers essentially can choose from four different approaches to dealing with naming issues, each with specific pros and cons: The factors influencing brand decisions in

11021-406: The way in which they are financed and partly by the relative size of the companies. Various methods of financing an M&A deal exist: Payment by cash. Such transactions are usually termed acquisitions rather than mergers because the shareholders of the target company are removed from the picture and the target comes under the (indirect) control of the bidder's shareholders. Payment in the form of

11128-496: Was achieved and the final report was not made public. The link between the two themes of European deposit insurance and RTSE has been acknowledged by EU officials and embedded in negotiating frameworks of the council. As of mid-2020, however, no tangible progress has been achieved on reaching a policy consensus. The 20 eurozone member states automatically participate in European Banking Supervision and

11235-586: Was adopted by unanimity of the Council , with only a consultative role for the European Parliament . To secure the consent of the United Kingdom, however, it was critical to simultaneously adopt a reform of the EBA Regulation of 2010 (Regulation (EU) No 1022/2013 of the European Parliament and of the Council of 22 October 2013 amending Regulation (EU) No 1093/2010 establishing a European Supervisory Authority ( European Banking Authority ) as regards

11342-434: Was increasingly used in the public policy debate, including by the European Commission. The integration of bank regulation has long been sought by EU policymakers, as a complement to the internal market for capital and, from the 1990s on, of the single currency . However, powerful political obstacles including the willingness of member states to retain instruments of financial repression and economic nationalism led to

11449-551: Was joined on this stance by the governments of Finland and the Netherlands . Eventually, such conditions were put on the ESM direct recapitalisation instrument that, as of September 2014, it has never been activated. However, the establishment of European Banking Supervision proceeded apace. Furthermore, in December 2012 the European Council announced the creation of the Single Resolution Mechanism . Europe's banking union has been identified by many analysts and policymakers as

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