In this module, we're going to learn how to value synergies. A very interesting topic that we're going to talk about is that there are two views about synergies. There is the management view, which is financial managers, the managers of the acquiring the target use to design the M&A deal. But then there's also the market view. We can calculate. We can figure out what is the markets valuation of synergies. As you might imagine very frequently, managements and markets have different views. The management will, typically, in a strategic M&A, disclose estimates that we can use to place a value on synergies, where we can calculate the net present value of synergies using the techniques we're going to learn in this module. But the stock market has its own views. If the acquirer is a public company, we can actually look at stock market data to figure out what the market thinks about the M&A deal. Then as we're going to see, there is often disagreement and we're going to learn why do managers and markets often disagree with each other. In order to figure out the market valuation of the deal, what we're going to do is, we're going to use the market's reaction to the deal announcement. There is news about an M&A deal we can use this news in order to figure out the market value of the deal. Also, it's important to point out that the market reaction is not going to depend only on synergies. It's going to depend on other variables as well and we need to know that in order to properly interpret the reaction of the market and try to figure out what's the market's view about the deal. A very important concept that we're going to learn in this module is that synergies and M&A premia are related. We're going to learn how to relate synergies to the premium paid for target, what is the relationship between those two concepts and how to use these calculations to figure out what is the net present value of a deal both for acquire and target. In the second part of this module, we're going to talk about a very interesting part of the M&A world, which I like to call rare and fine because it's not the most common type of M&A deal, but it really consists of some of the most interesting M&A deals that we have out there, which is what we call a hostile takeover. This is a situation in which the target does not want to be acquired, but then the acquire tries to force the acquisition and there of course raises a lot of interesting issues. For example, about governance and legal issues around M&A that we're going to highlight in this module. You can think of a hostile takeover as a battle for control. You have acquirers, targets, boards, shareholders, judges. There are lots of players. In my view is that not only is important, of course, to cover hostile takeovers, but it's also a great way to learn more about M&A to think about this deals in which the target does not want to be acquired. The other reason why hostile takeovers is important is because the hostile takeover can be the next step following a friendly negotiation, which also means that a friendly deal is frequently framed by the prospect of a hostile battle. Even if hostile takeovers in practice are rare, the threat of hostility may be framing the M&A market. It may be framing the deals that appear to be friendly, but really are affected by the prospect of a hostile battle, as we're going to learn in this module. Specifically, in Module 4, you're going to learn how to value synergies. Of course, that's a very important part of M&A. We're going to learn the difference between the management and the market's perspective when value synergies. Then we're going to learn how to calculate the NPV of a deal, both for the acquiring and the target and how to relate synergies to M&A premia. Those two topics are very related as you're going to learn. Then we're going to talk about the market's reaction. How can we use the stock market reaction to figure out the value of those synergies? For that, we need to discuss the idea that the stock market reaction depends on factors other than synergies. We're going to learn about merger arbitrage spreads, which is an important figure in the M&A world and how to infer the chances of deal failure from this arbitrage spread. Then we're going to move to hostile takeovers. We're going to talk about strategies, the battle for control. We're going to talk about strategies that acquirers and targets have during this hostile takeover battle. This battle is framed by very important regulations that we need to talk about. Acquirers and targets are not free to do whatever they want. There is certain rules and laws that need to be obeyed and that you have to learn about. Specifically, we're going to learn about poison pills, which is a very important takeover defense strategy and the role of other governance provisions, in particular, poison pills and staggered boards, are the most important takeover defense that targets have. We need to learn what these are and why they are important for the M&A market. We're also going to talk about evaluation questions. This takeover defenses, for example, poison pills, we're going to learn that they can benefit or they can hurt the shareholders of the target and we're going to talk about this trade-off and we're going to talk about the empirical evidence that we have on poison pills. We're also going to talk about why poison pills are legal. We're going to have a lot of discussion to figure out why poison pills are actually legal. I'm going to show some evidence that poison pills destroy shareholder value on average, but they are legal. We're going to learn why. However, it is true, as we are going to learn in this module as well, that poison pills in order takeover defenses have become less common over time. We're going to learn why. Finally, we're going to talk about the fact that even if a target board does not have a poison pill available, a board can still have defenses sealed. There are ways that companies can defend against hostile acquisition, even if you cannot deploy poison pills.
