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併購(M&A)與 私募(PE) 專業詞彙

A

Abnormal return
In event studies, the part of the return that is not predicted; the change in value caused by the event. Also excess return, benchmark adjusted.

Acquisition
The purchase of a controlling interest in a firm, generally via a tender offer for the target shares.

Acquisition MLP
Also called start-up master limited partnership; the assets of an existing entity are transferred to an MLP, and the business is henceforth conducted as an MLP. The Boston Celtics's conversion into an MLP is an example.

Adjusted present value (APV)
A method of valuation in which operating free cash flows are discounted at the cost of equity and tax shields are discounted at the cost of debt.

Adverse selection
Without a basis for buyers to identify good products, bad products will always be offered at the same price as good products; said to be a characteristic of the used-car market in which buyers have to consider the probability that they are being offered a lemon.

Agency problem
The conflict of interest between principal (e.g., shareholders) and agent (e.g., managers) in which agents have an incentive to act in their own self-interest because they bear less than the total costs of their actions.

Anergy
Negative synergy, instead of a "2 + 2 = 5' effect, energy implies "2 + 2 = 3." Business units actively interfere with each other and may have more value if separated.

Announcement data
In event studies, typically, the day information becomes public.

Antigreenmail amendment
Corporate charter amendment that prohibits targeted share repurchases at a premium from an unwanted acquirer without the approval of nonparticipating shareholders.

Antitakeover amendment
A corporate charter amendment that is intended to make it more difficult for an unwanted acquirer to take over the firm.

Any-or-all offer
A tender offer that does not specify a maximum number of shares to be purchased, but none will be purchased if the conditions of the offer are net met.

Appraisal right
The right of minority shareholders to obtain an independent valuation of their shares to determine the appropriate back-end value in a two-tier tender offer.

Arbitrage
The purchase of an asset for near-term resale at a higher price. In the context of M&As, risk arbitrage refers to investing in the stock of takeover targets for short-term resale to capture a portion of the gains that typically accrue to target shareholders.

Arbitrage pricing theory
A general approach to asset pricing that allows for the possibility that multiple factors may be used to explain asset returns, as opposed to the capital asset pricing model. (See Capital asset pricing model.)

Atomistic competition
Numerous small sellers and buyers, none of which have the power to influence market prices or output.

Atomistic shareholders
Each shareholder has only a small amount of stock. Small shareholders have less incentive to monitor management than large block shareholders.

Auction
Two or more bidders competing for a single target. An auction increases the price target shareholders receive.

B

Back-end value
The amount paid to remaining shareholders in the second stage of a two-tier or partial tender offer.

Bear hug
A takeover strategy in which the acquirer, without previous warning, mails the directors of the target a letter announcing the acquisition proposal and demanding a quick decision.

Benchmark
A company, group of companies, or portfolio used as a standard of performance.

Beta
In the capital asset pricing model, the systematic risk of the asset; the variability of the asset's return in relation to the return on the market.

Bidder
The acquiring firm in a tender offer.

Blended price
The weighted average price in a two-tier tender offer. Tile front-end price is weighted by the percent of shares purchased in the first step of the transaction, and the lower, back-end price is weighted by the percent of shares purchased to complete the transaction.

Blockholder
The holder of a significant percentage of the ownership shares.

Board-out clause
A provision in most super-majority antitakeover amendments that gives the board of directors the power to decide when and if the supermajority provision will be in effect.

Bootstrap transaction
A highly leveraged transaction (HLT).

Bottom-up
An approach to firm strategy formulation based on the aggregation of segment forecasts.

Bounded rationality
Refers to the limited capacity of the human mind to deal with complexity.

Brand-name capital
Firm reputation; the result of nonsalvageable investment, which provides customers with an implicit guarantee of product quality for which they are willing to pay a premium.

Breach of trust
Unilaterally changing the terms of a contract.

Business judgment rule
A legal doctrine that holds that the board of directors is acting in the best interests of shareholders unless it can be proven by a preponderance of the evidence that the board is acting in its own interest or is in breach of its fiduciary duty.

Bust-up takeover
An acquisition followed by the divestiture of some or all of the operating units of the acquired firm, which can be sold at prices greater than their current value.

Buyback
See Share repurchase.

C

Calls
Options to buy an asset at a specified price for a specified period of time.

Capital asset pricing model
Calculates the required return on an asset as a function of the risk-free rate plus the market risk premium times the asset's beta.

Capital budgeting
The process of planning expenditures whose returns extend over a period of time.

Capital cash flow valuation
A method of valuation in which capital cash flows are discounted at the expected or required return on assets.

Capital cash flows (CCF)
Operating free cash flows (FCF) plus tax shields.

Capital intensity
In economics, the ratio of investment required per dollar of sales. In finance, the sales-to-investment ratio. The steel industry and manufacturing generally are more capital intensive than the wholesale or retail industries.

Gash cows
A Boston Consulting Group term for business segments that have a high market share in low-growth product markets and thus throw off more cash flow than needed for reinvestment.

Chinese wall
The imaginary barrier separating investment banking and other activities within a financial intermediary.

Classified board
Also called a staggered board. An antitakeover measure that divides a firm's board of directors into several classes, only one of which is up for election in any given year, thus delaying effective transfer of control to a new owner in a takeover.

Clayton Act
Federal antitrust law originally passed in 1914 and strengthened in 1950 by the Celler- Kefauver amendment. Section 7 gives the Federal Trade Commission (FTC) power to prohibit the acquisition of one company by another if adverse effects on competition would result, or if the FTC perceives a trend that ultimately might lead to decreased competition.

Clean-up merger
Also called a take-out merger. The consolidation of the acquired firm into the acquiring firm after the acquirer has obtained control.

Clientele effect
A dividend theory that states that high-tax bracket shareholders will prefer to hold stock in firms with low dividend payout rates and low-tax bracket shareholders will prefer the stock of firms with high payouts.

Coercive tender offer
Any tender offer that puts pressure on target shareholders to tender by offering a higher price to those who tender early.

Coinsurance effect
The combination of two firms with cash flows that are not perfectly correlated will result in cash flow of less variability for the merged firm, thus decreasing the risk to lenders to the firm and thereby increasing its debt capacity.

Collar
The range of the exchange ratios in an acquisition in which the equity of the buyer is a part of the payment to the target. The range is specified in terms of the relative market values during the period before final approval of the transaction.

Collateral restraints
Agreements between the parties to a joint venture to limit competition between themselves in certain areas.

Collusion
Illegal coordination or cooperation among competitors with respect to price or output.

Complementarity
The strengths of one firm offset the weaknesses of another firm with which it combines. For example, one firm that is strong in marketing combines with one that is strong in research.

Concentration
Measures of the percentage of total industry sales accounted for by a specified number of firms, such as 4, 8, or 20.

Concentric merger
A merger in which there is carry-over in specific management functions (e.g., marketing) or complementarity in relative strengths among specific management functions rather than carryover complementarities in only generic management functions (e.g., planning).

Conglomerate
A combination of unrelated firms; any combination that is not vertical or horizontal.

Conjectural variation
The reaction of rival firms as one firm, Firm A, restricts output or raises prices. Ranges from -1 to +1; a negative conjectural variation indicates competitive behavior (i.e., Firm A's action is offset by the reactions of competing rival firms).

Contingent voting rights
Rights to vote in corporate elections that become exercisable upon the occurrence of a particular event. Examples: Preferred stockholders might win the right to vote if preferred dividends are missed; convertible debt might be viewed as having voting rights contingent upon conversion.

Convergence of interests hypothesis
Predicts a positive relationship between the proportion of management stock ownership and the market's valuation of the firm's assets.

Cost leadership
A business strategy based on achieving lower costs than rivals.

Covenant
See Indenture.

Crown jewels
The most valuable segments of a company; the parts most wanted by an acquirer.

Cumulative abnormal return (CAR)
In event studies, the sum of daily abnormal returns over a period relative to the event.

Cumulative voting
Instead of one vote per candidate selected, shareholders can vote (the number of shares they hold times the number of directors to be elected) for one candidate or divide the total votes among a desired number of candidates. Example: A shareholder has 100 shares; six directors are to be elected. With cumulative votings the shareholder has 600 votes to distribute among six candidates however he or she chooses.

D

De nova entry
Entry into an industry by forming a new company as opposed to combining with an existing firm in the industry.

Decision control
Fundamental ownership rights of shareholders to select management, to monitor management, and to determine reward/ incentive arrangements.

Decision management
Decision functions related to day4o-day operations that may be delegated to managers. Includes initiation and implementation of policies and procedures.

Defensive diversification
Entering new product markets to offset the limitations of the firm's existing product-market areas.

Defined benefit plan
A pension plan that specifies in advance the amount beneficiaries will receive based on compensation, years of service, and so on.

Defined contribution plan
A pension plan in which the annual contribution are specified in advance. Benefits upon retirement depend on the performance of the assets in which the contributions are invested.

Delphi technique
An information gathering technique in which questionnaires are sent to informed individuals. The responses are summarized into a feedback report and used to generate subsequent questionnaires to probe more deeply into the issue under study.

Differential managerial efficiency hypothesis
A theory that hypothesizes that more efficient managements take over firms with less efficient managements and achieve gains by improving the efficiency of the target.

Discounted cash flow valuation (DCF)
The application of an appropriate cost of capital to a future stream of cash flows.

Discriminatory poison pill
Antitakeover plans that penalize acquirers who exceed a given share-holding percentage (the kick-in or trigger point).

Dissident
A shareholder or group of shareholders who disagrees with incumbent management and seeks to make changes via a proxy contest to gain representation on the board of directors.

Diversification
The holding of assets whose returns are not perfectly correlated.

Divestiture
Sale of a segment of a company (assets, a product line, a subsidiary) to a third party for cash and/or securities.

Dividend growth valuation model
The application of an appropriate discount factor to a future stream of dividends.

Dividend method dual-class recapitalization
Most widely used method of converting to dual-class stock ownership. A stock split or dividend is used to distribute new, inferior voting stock. The previously existing common stock is redesignated as superior-vote class B stock.

Dogs
A Boston Consulting Group term for business segments characterized by low market shares in product markets with low growth rates.

Dual class recapitalization
Corporate restructuring used to create two classes of common stock with the superior-vote stock concentrated in the hands of management.

Dual-class stock
Two (or more) classes of common stock with equal rights to cash flows but with unequal voting rights.

DuPont system
A financial planning and control system that focuses on return on investment by relating asset turnover (effective asset management) to profit margin on sales (effective cost control).

Dutch auction repurchases (DARs)
Shareholders are permitted to put their shares to the company within a range of prices; at a price at which the company's target level of shares is reached, all shares offered receive that price.

Dynamic competition theory
A model of industrial organization theory that extends the traditional models of price and output decisions of firms in a static environment to decisions on product quality, innovation, promotion, marketing, and so on in changing environments.

Dynamic oligopoly
Although an industry might be dominated by a few large firms (oligopoly), recognized interdependence does not occur because decisions must be made on so many factors that actions and reactions of rivals cannot be predicted or coordinated.

E

Earnings before interest and taxes (EBIT)
Net operating income (NOI) plus net nonoperating income.

Earnings before interest, taxes, and depreciation and amortization (EBITDA)
Earnings before interest and taxes (EBIT) plus depreciation and amortization.

Earnout
Part of the payment to a target based on some measures of future performance.

Economic profit
Return on invested capital (ROIC) less the weighted average cost of capital (WACC) multiplied by invested capital.

Empirical test
Systematic examination of data to check the consistency of evidence with alternative theories.

Employee Retirement Income Security Act (ERISA)
Federal legislation enacted in 1974 to regulate pension plans including some ESOPs. Sets vesting requirements, fiduciary standards, and minimum funding standards. Established the Pension Benefit Guarantee Corporation (PBGC) to guarantee pensions~

Employee stock ownership plan (ESOP)
Defined contribution pension plan (stock bonus and/or money purchase) designed to invest primarily in the stock of the employer firm.

End of regulation
A theory hypothesizing that takeovers occur following deregulation of an industry as a result of increased competition, which exposes management inefficiency that might have been masked by regulation.

Entrenchment
See Managerial entrenchment hypothesis.

Equity carve-out
A transaction in which a parent firm offers some of a subsidiary's common stock to the general public to bring in a cash infusion to the parent without loss of control.

ERISA-type ESOP
Employee stock ownership plans other than tax credits ESOPs (i.e. includes , leveraged, leveragable, and nonleveraged ESOPs recognized under ERISA rather than under the Tax Reduction Act of 1975).

Event returns
A measure of the stock price reaction to the announcement of significant new information such as a takeover or some type of restructuring.

Event study
An empirical test of the effect of an event (e.g., a merger, divestiture) on stock returns. The event is the reference date from which analysis of returns is made regardless of the calendar timing of the occurrences in the sample of firms.

Excess return
See Abnormal return.

Exchange method dual-class recapitalization
Means of converting to a dual-class stock corporate structure. High-vote stock is issued to insiders in exchange for their currently outstanding (low-vote) stock. The remaining low-vote stock, in the hands of outside shareholders, generally receives a higher dividend.

Exchange offer
A transaction that provides one class (or more) of securities with the right or option to exchange part or all of their holdings for a different class of the firm's securities (e.g., an exchange of debt for common stock). Enables a change in capital structure with no change in investment.

Exit-type firm
In Jensen's free cash flow hypothesis, a firm with positive free cash flows. The theory predicts that for such a firm, stock prices will increase with unexpected increases in payout.

Extra merger premium hypothesis
The possibility that a higher price will be paid for superior vote shares if a dual-class stock firm becomes a takeover target and causes the price of superior vote stock to be higher even in the absence of a takeover bid.

F

Failing firm defense
A defense against a merger challenge alleging that in the absence of the merger, the firm(s) would fail. The 1982 Merger Guidelines spell out the conditions under which this defense will be acceptable.

Fair-price amendment
An antitakeover charter amendment that waives the supermajority approval requirement for a change of control if a fair price is paid for all purchased shares. Defends against two-tier offers that do not have board approval.

Fallen angel
A bond issued at investment grade whose rating is subsequently dropped to below investment grade, below BBB.

Financial conglomerates
Conglomerate firms in which corporate management provides a flow of funds to operating segments, exercises control and strategic planning functions, and is the ultimate financial risk taker but does not participate in operating decisions.

Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
A 1989 law changing the regulatory rules for savings and loan companies as well as other financial institutions.

Financial synergy
A theory that suggests a financial motive for mergers, especially between firms with high internal cash flows (but poor investment opportunities) and firms with low internal cash flows (and high investment opportunities which, absent merger, would require costly external financing). Also includes increased debt capacity or coinsurance effect and economies of scale in flotation and transactions costs of securities.

Fixed-price tender offers (FPTs)
A method of share repurchase in which a put price is specified for a specified number of company shares.

Flip-in poison pill plan
Shareholders of the target firm are issued rights to acquire stock in the target at a substantial discount when a bidder has reached a designated percentage ownership trigger point.

Flip-over poison pill plan
Shareholders of the target firm are issued rights to purchase the common stock of the surviving company at a substantial discount when a bidder has reached a designated percentage ownership trigger point.

Formula approach
A discounted cash flow valuation in which key variables or value drivers are used to calculate the net present value of a project or firm.

Four-firm concentration ratio
The sum of the shares of sales, value added, assets, or employees held by the largest four firms in an industry. A measure of competitiveness according to the structural theory.

Free cash flow
Cash flows in excess of positive net present value investment opportunities available.

Free cash flow hypothesis
Jensen's theory of how the payout of free cash flows helps resolve the agency problem between managers and shareholders. Holds that bonding payout of current (and future) free cash flows reduces the power of management as well as subjecting it more frequently to capital market scrutiny.

Free-rider problem
Atomistic shareholder reasons that its decision has no impact on the outcome of the tender offer and refrains from tendering to free ride on the value increase resulting from the merger, thus causing the bid to fall.

Front-end loading
A tender offer in which the offer price is greater than the value of any repurchased shares. Resolves the free-rider problems by providing an incentive to tender early.

Full ex post setting up
A manager's compensation is adjusted frequently over the course of his or her career to fully reflect his or her performance, thus eliminating an incentive to shirk.

G

Gambler's ruin
An adverse string of losses that could lead to bankruptcy, although the long-run cash flows could be positive.

Game theory
An analysis' of the behavior (actions and reactions) of participants under specified rules, information, and strategies.

General Utilities doctrine
An IRS rule that allowed firms to not recognize gains on the distribution of appreciated property in redemption of its shares (e.g., in a "legal" liquidation). Repealed by the Tax Reform Act of 1980.

Generic management functions
Those functions that are not industry specific and are thus transferable even in conglomerate mergers. Include planning, organizing, directing, and controlling.

Going-concern value
The value of the firm as a whole over and above the sum of the values of each of its parts; the value of organization learning and reputation.

Going private
The transformation of a public corporation into a privately held firm (often via a leveraged buyout or a management buyout).

Golden parachute
Provision in the employment contracts of top managers providing for compensation for loss of jobs following a change of control.

Goodwill
The excess of the purchase price paid for a firm over the book value received. Recorded on the acquirer's balance sheet, to be amortized over not more than 40 years (amortization not tax deductible).

Greenmail
The premium over the current market price Of stock paid to buy back the holdings accumulated by an unwanted acquirer to avoid a takeover.

Gross cash flews
Net operating profit after taxes (NOPAT) plus depreciation.

Gross present value
An appropriately discounted stream of future cash flows before the deduction of investment costs.

Growth-sharp matrix
A guide to strategy formulation that emphasizes attainment of high market share in industries with favorable growth rates.

 

H

Harassment hypothesis
Ellert's theory that Federal Trade Commission antitrust complaints are brought against firms with abnormally good stock price performance at the instigation of the firms competitors who are threatened by their superior performance.

Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR)
Expands power of Department of Justice in antitrust investigations; provides for waiting period (15 days for tender offers, 30 days for mergers) following submission of information to Department of Justice and Federal Trade Commission before transaction can be completed; expands power of state attorneys general to institute triple-damage antitrust lawsuits on behalf of their citizens.

Herfindahl-Hirschman Index (HHI)
The measure of concentration under the 1982 Merger Guidelines, defined as the sum Of the squares of the market shares of all the firms in the industry.

Hidden equity
Undervalued assets whose market value exceeds their depreciated book value but is not reflected in stock price.

High-yield bond
See Junk bond.

Highly leveraged transaction (HLT)
Use of debt in relation to equity in excess of average industry ratios.

Holding company
An organization whose primary function is to hold the stock of other corporations but that has no operating units of its own. Similar to the multidivisional organization, which has profit centers and a single central headquarters; however, the segments owned by the holding company are separate legal entities that in practice are controlled by the holding company.

Holdup
Whenever a resource is dependent on (specialized to) the rest of the firm, there may be a temptation for others to try to expropriate the quasi-rent of the dependent resource by with- holding their complementary resources; this is holdup. However, each resource in the team (firm) may be dependent on all the others, and thus all are vulnerable to expropriation.

Horizontal merger
A combination of firms operating in the same business activity.

Hostile takeover
A tender offer that proceeds even after it has been opposed by the management of the target.

Hubris hypothesis (Winner's curse)
Roll's theory that acquiring firm managers commit errors of overoptimism in evaluating merger opportunities (due to excessive pride, animal spirits) and end up paying too high a price for acquisitions.

 I

Implicit claim
A tacit rather than contractual promise of continuing service and delivery of expected quality to customers and job security to employees.

Incentive stock option (ISO)
An executive compensation plan to align the interests of managers with stockholders. Executives are issued options whose exercise price is equal to or greater than the stock price at the time of issue and thus have value only if the stock price rises, giving managers incentives to take actions to maximize stock price.

Increased debt capacity hypothesis
A theory that postmerger financial leverage increases are the result of increased debt capacity (as opposed to the firms involved having been underleveraged before the merger) due to reduced expected bankruptcy costs.

Indenture
The contract between a firm and its bondholders that sets out the terms and conditions of the borrowing and the rights and obligations of each party (covenants).

Industry life cycle
A conceptual model of the different stages of an industry's development. (1) Development stage--new product, high investment needs, losses. (2) Growth stage--consumer acceptance, expanding sales, high profitability, case of entry. (3) Maturity stage--sales growth slows, excess capacity, prices and profits decline--key period for merger strategy. (4) Decline stage--substitute products emerge, sales growth declines, pressure for mergers to survive.

Inferior-vote stock
In dual-class stock firms, the class of common stock that has less voting power (e.g., may be able to elect only a minority on the board of directors; may be compensated with higher dividends).

Information asymmetry
A game or decisions in which one party has more information than other players.

In play
Because of a bid or turnouts of a bid, the financial community regards the company as receptive or vulnerable to takeover bids.

Initial public offering (IPO)
The first offering to the public of common stock (e.g., of a former privately held firm) or a portion of the common stock of a hitherto wholly owned subsidiary.

Insider trading
Some parties take action based on information net available to outside investors.

Internal rate of return (IRR)
A capital budgeting method that finds the discount rate (the IRR) that equates the present value of cash inflows and investment outlays. The IRR must equal or exceed the relevant risk-adjusted cost of capital for the project to be acceptable.

Investment Advisers Act of 1940 (IAA)
Federal securities legislation providing for registration and regulation of investment advisers.

Investment Company Act of 1940 (ICA)
Federal securities legislation regulating publicly owned companies in the business of investing and trading in securities; subjects them to SEC rules. Amended in 1970 to place more controls on management compensation and sales charges.

Investment requirements
Include capital expenditures and additions to working capital. Can be expressed as a percentage of revenues or as a percentage of changes in revenues.

Investment requirements ratio
A firm's investment expenditures (or opportunities) in relation to after-tax cash flows.

 J

Joint production
Production using complementary inputs in which the output cannot be unambiguously attributed to any single input and in which the output is greater than the sum of the inputs (i.e., synergy). Problems in assigning returns may arise if the inputs are net owned by the same entity.

Joint venture
A combination of subsets of assets contributed by two (or more) business entities for a specific business purpose and a limited duration. Each of the venture partners continues to exist as a separate firm, and the joint venture represents a new business enterprise.

Junk bond
High-yield bonds that are below investment grade when issued, that is, rated below BBB (Standard & Poor's) or below Baa3 (Moody's).

K

Kick-in or trigger point
The level of share ownership by an acquiring firm that activates the poison pill antitakeover defense plan.

Kick-in-the-pants hypothesis
Attributes the increase in a takeover target's stock price to the impetus given by the bid to target management to implement a higher-valued strategy.

L

Latent debt capacity hypothesis
A theory that postmerger increases in financial leverage are due to underleverage in the premerger period.

Learning-by-doing
A means of transferring knowledge that is complex or embedded in a complex set of technological and/or organizational circumstances and thus difficult or impossible to transfer in a classroom setting. May motivate knowledge acquisition joint ventures.

Learning curve
An approach to strategy formulation that hypothesizes that costs decline with cumulative volume experience, resulting in competitive advantage for the first entrants into an industry.

Leveraged buyout (LBO)
The purchase of a company by a small group of investors, financed largely by debt. Usually entails going private.

Leveraged cash-out (LCO)
See Leveraged recapitalization.

Leveraged ESOP
An employee stock ownership plan recognized under ERISA in which the ESOP borrows funds to purchase employer securities. The employer then makes tax-deductible contributions to the ESOP sufficient to cover both principal repayment and interest on the loan.

Leveraged recapitalization
A defensive reorganization of the firm's capital structure in which out- side shareholders receive a large, one-time cash dividend and inside shareholders receive new shares of stock instead. The cash dividend is largely financed with newly borrowed funds, leaving the firm highly leveraged and with a greater proportional ownership share in the hands of management. Also called leveraged cash-out.

Life cycle model of firm ownership
A theory that suggests that firms will attract different shareholder clienteles (high- or low-tax bracket investors) over different periods of firm development depending on changing investment nee~ and profitability.

Line and staff
An organizational form characterized by the separation of support activities (staff) from operations (line).

Liquidation
Divestiture of all the assets of a firm so that the firm ceases to exist.

Liquidation MLP
The complete liquidation of a corporation into a master limited partnership.

Lock-in amendment
A corporate charter amendment that makes it more difficult to void previously passed (antitakeover) amendments (e.g., by requiring supermajority approval for a change).

Lock-up option
An option to buy a large block of newly issued shares that target management may grant to a favored bidder, thus virtually guaranteeing that the favored bidder will succeed. Target management's ability to grant a lock-up option induces bidders to negotiate.

Logical incrementalism
A process of effecting major changes in strategy via a series of relatively small (incremental) changes.

M

Macroconcentration
An overall measure of the share of sales or value added by a specified number of firms; their share is the aggregate concentration ratio (ACR).

Management buyout (MBO)
A going-private transaction led by the incumbent managers of the formerly public firm.

Managerial conglomerates
Conglomerate firms that provide managerial expertise, counsel, and interaction on decisions pertaining to operating units. Based on the transferability of generic management skills even? across nonrelated businesses.

Managerial entrenchment hypothesis
A theory that antitakeover efforts are motivated by managers' self-interests in keeping their jobs rather than in the best interests of shareholders.

Managerialism
A theory that managers pursue mergers and acquisitions to increase the size of the organizations they control and thus increase their compensation.

Marginal cost of capital (MCC)
The relevant discount factor for a current decision.

Mark-to-market accounting
At statement dates, assets and liabilities are restated to measures of their current market values.

Market-adjusted return
The return for a firm for a period is its actual return less the return on the market index for that period.

Market extension merger
A combination of firms whose operations had previously been conducted in nonoverlapping geographic areas.

Market model
In event studies, the most widely used method of calculating the return predicted if no event took place. In this method, a clean period (with no events) is chosen, and a regression is run of firm returns against the market index return over the clean period. The regression coefficient and intercept are then used with the market index return for the day of interest in the event period to predict what the return for the firm would have been on that day had no event taken place.

Market value rule
The principle that all decisions of a corporation should be judged solely by their contribution to the market value of the firm's stock.

Markup return
The event return measured from the announcement date to various designated dates thereafter.

Master limited 'partnership (MLP)
An organizational form in which limited partnership interests are publicly traded (like shares of corporate stock) while retaining the tax attributes of a partnership.

Matrix organization
Company that has functional departments assigned to subunits organized around products or geography. Employees report to a functional manager as well as a product manager.

Maximum limit offer
A stock repurchase tender offer in which all tendered shares will be purchased if the offer is undersubscribed, but if the offer is oversubscribed, shares may be purchased only on a pro rata basis.

Mean adjusted return
The actual return for a period less the average (mean) return calculated for a time segment before, after, or both in relation to the event.

Merger
Any transaction that forms one economic unit from two or more previous units.

Mezzanine financing
Subordinated debt issued in connection with leveraged buyouts. Sometimes carries payment-in-kind (PIK) provisions, in which debt holders receive more of the same kind of debt securities in lieu of cash payments under specified conditions.

Microconcentration
A measure of the market share of individual firms or groups such as the four- firm concentration ratio or a measure of inequality of market shares such as the HHI.

Minority squeeze-out
The elimination by controlling shareholders of noncontrolling (minority) shareholders.

Misappropriation doctrine
A rationale for insider trading prosecution of outsiders who trade on the basis of information that they have "misappropriated'' (e.g., stolen from their employers or obtained by fraud).

Money purchase plan
A defined contribution pension plan in which the firm contributes a specified annual amount of cash as opposed to stock bonus plans in which the firm contributes stock, and profit-sharing plans in which the amount of the annual cash contribution depends on profitability.

Monopoly
A single seller.

Moral hazard
One party (principal) relies on the behavior of another agent), and it is costly to observe information or action. Opportunistic behavior in which success benefits one party and failure injures another (e.g., high leverage benefits equity holders under success and injures creditors under failure).

Muddling through
An approach to strategy formulation in which policy makers focus only on those alternatives that differ incrementally (i.e., only a little) from existing policies rather than considering a wider range of alternatives.

Multidivisional corporation (M-form)
An organizational form to achieve greater efficiency via profit centers to reduce the need for information flow across divisions and to guide resource allocation to the highest-valued uses. Benefits from large fixed investment in general management expertise (especially strategic planning, monitoring, and control) spread over a number of individual decentralized operations (at which level decision making on specific management functions takes place).

Multinational enterprise (MNE)
A business organization with operations in more than one country, beyond import-export operations.

N

NASDAQ
Stock quotation system of the National Association of Securities Dealers for stocks that trade over the counter as opposed to being traded on an organized exchange.

National Association of Attorneys General (NAAG)
An organization of state attorneys general.

Negotiated share repurchase
Refers to buying back the stock of a large blockholder (an unwanted acquirer) at a premium over market price (greenmail).

Net operating income (NOI)
Revenues minus all operating costs including depreciation.

Net operating loss carryover
Tax provision allowing firms to use net operating losses to offset taxable income over a period of years before and after the loss. Available to firms that acquire a loss firm only under strictly specified conditions.

Net operating profit after taxes (NOPAT)
Net operating income (NOI) multiplied by one minus the actual cash tax rate applicable to a line of business.

Net present value (NPV)
Capital budgeting criteria that compares the present value of cash inflows of a project discounted at the risk-adjusted cost of capital to the present value of investment outlays (discounted at the risk-adjusted cost of capital).

Niche opportunities
A business strategy that aims at meeting the needs or interests of specific consumer groups.

No-shop agreement
The target agrees not to consider other offers while negotiating with a particular bidder.

Nolo contendere
A legal plea in which a defendant, without admitting guilt, declines to contest allegations of wrongdoing.

Nondiscriminatory poison pill
Antitakeover defense plans that do not penalize acquirers exceeding a given shareholding limit. Include flip-over plans, preferred stock plans, and ownership flip- in plans that permit cash offers for all shares.

Nonleveraged ESOP
An employee stock ownership plan recognized under ERISA that does not provide for borrowing by the ESOR Essentially the same as a stock bonus plan.

Normal return
In event studies, the predicted return if no event took place, the reference point for the calculation? of abnormal, or? excess, return attributable to the event.

O

Oligopoly
A small number (few) of sellers.

Omnibus Budget Reconciliation Act of 1993 (OBRA)
A tax law that included the conditions under which the excess purchase price over the accounting value of a target could be amortized as a taxdeductible expense.

Open corporations
Fama and Jensen's term for large corporations whose residual claims (common stock) are least restricted. They identify 'the following characteristics: (1) They have property rights in net cash flows for an indefinite horizon; {2) stockholders are not required to hold any other role in the organization; (3) common stock is alienable (transferable, salable) without restriction.

Open-market share repurchase
Refers to a corporation buying its own shares on the open market at the going price just as any other investor might buy the corporation's shares, as opposed to a tender offer for share repurchase or a negotiated repurchase.

Operating free cash flows (FCF)
Gross cash flows minus investment requirements.

Operating synergy
Combining two or more entities results in gains in revenues or cost reductions because of complementarities or economies of scale or scope.

Opportunism
Self-interest seeking with guile, including shirking, cheating.

Organization capital
Firm-specific informational assets that accumulate over time to enhance productivity. Includes information used in assigning employees to appropriate tasks and forming teams of employees, and the information each employee acquires about other employees and the organization. Alternatively, defined by Cornell and Shapiro as the current market value of all future implicit claims the firm expects to sell.

Organization culture
An organization's "style" or approach to problem solving, relations with employees, customers, and other stakeholders.

Organization learning
The improvement in skills and abilities of individuals or groups (teams) of employees through learning by experience within the firm. Includes managerial learning (generic as well as industry specific) and non- managerial labor learning.

Original plan poison pill
A so called preferred stock plan. An early poison pill antitakeover defense in which the firm issues a dividend of convertible preferred stock to its common stockholders. If an acquiring firm passes a trigger point of share ownership, preferred stockholders (other than the large blockholder) can put the preferred stock to the target firm (force the firm to redeem it) at the highest price paid by the acquiring firm for the target's common or preferred stock during the past year. If the acquirer merges with the target, the preferred can be converted into acquirer voting stock with a market value no less than the redemption value at the trigger point.

Ownership flip-in plan
A poison pill antitakeover defense often included as part of flip-over plan. Target stockholders are issued rights to purchase target shares at a discount if an acquirer passes a specified level of share ownership. The acquirer's rights are void, and his or her ownership interest becomes diluted.

P

Pac Man defense
The target makes a counterbid for the acquirer.

Parking
A securities law violation in which traders attempt to hide the extent of their share ownership (to avoid the 5% trigger requiring disclosure of takeover intentions and keep down the price of target stock) by depositing, or parking, shares with an accomplice broker until a later date (e.g.,
when the takeover attempt is out in the open).

Partial fender offer
A tender offer for less than all target shares: specifies a maximum number of shares to be accepted but does not announce bidder's plans with respect to the remaining shares.

Payment-in-kind (PIK) provision
A clause that provides for issuance of more of the same type of securities to bondholders in lieu of cash interest payments.

Payroll-based ESOP (PAYSOP)
A type of employee stock ownership plan in which employers could take a tax credit of 0.5 % of ESOP covered payroll. Repealed by the Tax Reform Act of 1986.

Pension plan
A fund established by an organization to provide for benefits to plan participants (e.g., employees) after their retirement.

Perfect competition
Set of assumptions for an idealized economic model: (1) Large numbers of buyers and sellers so none can influence market prices or output; (2) economies of scale exhausted at relatively small size, and cost efficiencies are the same for all companies; (3) no significant barriers to entry; (4) constant innovation, new product development; (5) complete knowledge of all aspects of input/output markets is costlessly available.

Plasticity (Alchian and Woodward)
Resources are considered plastic when a wide range of discretionary uses can be employed by the user. If monitoring costs are high, moral hazard problems are likely to develop.

Poison pill
Any antitakeover defense that creates securities that provide their holders with special rights (e.g., to buy target or acquiring firm shares) exercisable only after a triggering event (e.g., a tender offer for or the accumulation of a specified percentage of target shares). Exercise of the rights would make it more difficult and/or costly for an acquirer to take over the target against the will of its board of directors.

Poison put
A provision in some new bond issues designed to protect bondholders against takeover-related credit deterioration of the issuer. Following a triggering event, bondholders may put their bonds to the corporation at an exercise price of 100% to 101% of the bond's face amount.

Pooling of interests accounting
Assets and liabilities of each firm are combined based solely on their previous accounting values.

Portfolio balance strategy
A balance in business segments based on market growth-market share criteria. Combine high growth-high market share (stars), low growth-high market share (cash cows), and low growth-low market share (dogs) segments to achieve favorable overall growth, profitability, and sufficient internal cash flows to finance positive NPV investment opportunities.

Potential competition
Firms not in an industry at the present time but that could enter.

Predatory behavior
A theory that holds that a dominant firm may price below cost or build excess capacity to inflict economic harm on existing firms and to deter potential entrants.

Premium buyback
Refers to repurchasing the stock of a large blockholder (an unwanted acquirer) at a premium over market price (greenmail).

Price-cost margin (PCM)
Defined as (Price minus Marginal Cost) divided by Price; that is, operating profit as a percentage of price. A zero PCM reflects perfect competition (i.e., Price = Marginal Cost).

Price pressure
A theory that the demand curve for the securities of an individual company is downward sloping and that this causes negative stock price effects resulting from large supply increases such as large block offerings.

Price trader
Outside investors who trade in response to price changes in securities regardless of whether or not they understand the cause of the price change.

Product breadth
Carryover of organizational capabilities to new products.

Product differentiation
The development of a variety of product configurations to appeal to a variety of consumer tastes.

Product-extension merger
A type of conglomerate merger; a combination between firms in related business activities that broadens the product lines of the firms; also called concentric mergers,

Product life cycle
A conceptual model of the stages through which products or lines of business pass. Includes development, growth, maturity, and decline. Each stage presents its own threats and opportunities.

Production knowledge
A form of organization learning; entrepreneurial or managerial ability to organize and maintain complex production processes economically.

Profit-sharing plan
A defined contribution pension plan in which the firm's annual contributions to the plan are based on the firm's profitability.

Proxy contest
An attempt by a dissident group of shareholders to gain representation on a firm's board of directors.

Public Utilities Holding Company Act of 1935
Federal securities legislation to correct abuses in financing and operation of gas and electric ?utility holding company systems.

Purchase accounting
The total assets of the combined firm reflect the purchase price of the target.

Pure conglomerate merger
A combination of firms in nonrelated business activities that is neither a product-extension nor a geographic- extension merger.

Puts
An option to sell an asset at a specified price for a designated period of time.

Q

q-ratio (Tobin's q-ratio)
The ratio of the market value of a firm's securities to the replacement costs of its physical assets.

Quasi-rent
The excess return to an asset above the return necessary to maintain its current service flow.

R

Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO)
Federal legislation that provides for seizure of assets upon accusation and triple damages upon conviction for companies? that conspire to defraud consumers, investors, and so on.

Real options
The use of an analytical framework that calculates the value of flexibility.

Recap
See Leveraged recapitalization..

Recapture of depreciation
The amount of prior depreciation that becomes taxable as ordinary income when an asset is sold for more than its tax basis.

Redistribution hypothesis
A theory that value increases in mergers represent wealth shifts among stakeholders (e.g., a wealth transfer from bondholders to shareholders) rather than real increases in value.

Residual analysis
The examination of asset returns to determine if a particular event has caused the return to deviate from a normal or predicted return that would have resulted if the event had not taken place. The difference between the actual return and the predicted return is the residual.

Residual claims
The right of owners of an organization to cash flows not otherwise committed.

Restricted vote stock
In dual-class stock firms, the stock with inferior voting rights.

Restructuring
Significant changes in the strategies and policies relating to asset composition and liability and equity patterns as well as operations.

Retention ratio
The percentage of free cash flows retained in the firm.

Return on invested capital (ROIC)
The percentage of net operating profit after taxes (NOPAT) to total operating assets.

Returns to scale
As scale of operations becomes larger, marginal and average costs decline.

Reverse LBOs
Firms, or divisions of firms, that go public again after having been taken private in a leveraged buyout transaction.

Reverse mergers
The uncombining of firms via spin- offs, divestitures, and so on.

Risk-free rate
The return on an asset with no risk of default. In theory, the return on short-term government securities.

Risk premium
The differential of the required return on an asset in excess of the risk-free rate.

Roll-out MLP
Also called spin-off MLP. A corporation transfers some of its assets to an MLP to avoid double taxation; for example, MLP units are initially distributed to corporate shareholders, and corporate management serves as the general partner.

Roll-up MLP
The combination of several ordinary limited partnerships into a master limited partnership.

Royalty trust
An organizational form used by firms that would otherwise be taxed heavily (due to declining depreciation and increasing pretax cash flows) to transfer ownership to investors in low tax brackets.

Runup return
The event return measured for some period ending with the announcement date.

S

Sample selection bias
Criteria for sample may exclude some relevant categories. Examples: Completed spin-offs will not include spin-offs announced but not completed. Measures of industry profitability will not include firms that have failed. Studies of leveraged buyouts that have a subsequent public offering will represent the most successful and exclude the failures or less successful.

Saturday night special
A hostile tender offer with a short time for response.

Scale economies
The reduction in per-unit costs achievable by spreading fixed costs over a higher level of production.

Schedule 13D
A form that must be filed with the SEC within 10 days of acquiring 5% or more of a firm's stock; discloses the acquirer's identity and business intentions toward the target. Applies to all large stock acquisitions.

Schedule 14D
A form that must be riled with the SEC by any group or individual making solicitations or recommendations that would result in its owning more than 5% of .the target's stock. Applies to public tender offers only.

Scorched earth defenses
Actions taken to make the target less attractive to the acquiring firm and that also might leave the target in weakened condition. Examples are sale of best segments (crown jewels) and incurring high levels of debt to pay a large dividend or to engage in substantial share repurchase.

Second-step transaction
Typically the merger of an acquired firm into the acquirer after control has been obtained.

Secondary initial public offering (SIPO)
The reoffering to the public of common stock in a company that initially was public but then was taken private (e.g., in an LBO).

Securities Act of 1933 (SA)
First of the federal securities laws of the 1930s. Provides for federal regulation of the sale of securities to the public and registration of public offerings of securities.

Securities Exchange Act of 1934 (SEA)
Federal legislation that established the Securities and Exchange Commission (SEC) to administer securities laws and to regulate practices in the purchase and sale of securities.

Securities Investor Protection Act of 1970 (SIPA)
Federal legislation that established the Securities Investor Protection Corporation empowered to supervise the liquidation of bankrupt securities firms and to arrange for payments to their customers.

Securities parking
An arrangement in which a second party holds ownership of assets to avoid identification of the actual owner in order to avoid rules and regulations related to securities trading.

Sell-off
General term for divestiture of part or all of a firm by any one of a number of means--sale, liquidation, spin-off, and so on.

Shareholder interest hypothesis
The theory that shareholder benefits of antitakeover defenses outweigh management entrenchment motives and effects.

Share repurchase
A public corporation buys its own shares, by tender offer, on the open market or in a negotiated buyback from a large blockholder.

Shark repellent
Any of a number of takeover defenses designed to make a firm less attractive and less vulnerable to unwanted acquirers.

Shark watcher
A firm (usually a proxy solicitation firm) that monitors trading activity in its clients' stock to detect early accumulations by an unwanted acquirer before the 5% disclosure threshold.

Shelf registration
The federal securities law provision in Rule 415 that allows firms to register at one time the total amount of debt or equity they plan to sell over a 2 year period. Securities can then be sold with no further delays whenever market conditions are most favorable.

Sherman Act of 1890
Early antitrust legislation. Section 1 prohibits contracts, combinations, and conspiracies in restraint of trade. Section 2 is directed against actual or attempted monopolization.

Short-swing trading rule
Federal regulation under Section 16 of the Securities Exchange Act that prohibits designated corporate insiders from retaining the profits on any purchase and sale of their own firm's securities within a 6 month period.

Signaling
An action that conveys information to other players; for example, seasoned new equity issues signal that the stock is overvalued.

Silver parachutes
Reduced golden parachute provisions that extend to a wider range of managers.

Sitting-on-a-gold mine hypothesis
Attributes the increase in a takeover target's stock price to information disclosed during the takeover process that the target's assets are undervalued by the market.

Small numbers problem
When the number of bidders is large, rivalry among bidders renders opportunistic behavior ineffectual. When the number of bidders is small, each party seeks terms most favorable to it through opportunistic representations and haggling.

Specialized asset
An asset whose use is complementary to other assets. For example, a pipeline from oil-producing fields to a duster of refineries near large consumption markets.

Specificity
The degree to which an asset or resource is specialized to and thus dependent on the rest of the firm or organization.

Spin-off
A transaction in which a company distributes on a pro rata basis all of the shares it owns in a subsidiary to its own shareholders. Creates a new public company with (initially) the same proportional equity ownership as the parent company.

Split-off
A transaction in which some, but not all, parent company shareholders receive shares in a subsidiary in return for relinquishing their parent company shares.

Split-up
A transaction in which a company spins off all of its subsidiaries to its shareholders and ceases to exist.

Spreadsheet approach
Analysis of data over a number of past and projected time periods.

Squeeze-out
The elimination of minority shareholders by a controlling shareholder.

Staggered board
Also called a classified board. An antitakeover measure that divides a firm's board of directors into several classes, only one of which is up for election in any given year, thus delaying effective transfer of control to a new owner in a takeover.

Stake-out investment
Preliminary investment for a foothold in anticipation of the future possibility of a larger investment.

Stakeholder
Any individual or group who has an interest in a firm; in addition to shareholders and bondholders, includes labor, consumers, suppliers, the local community, and so on.

Standard Industrial Classification (SIC)
The Census Bureau's system of categorizing industry groups, mainly product or process oriented.

Standstill agreement
A voluntary contract by a large block shareholder (or former large blockholder bought out in a negotiated repurchase) not to make further investments in the target company for a specified period of time.

Start-up MLP
Also called acquisition MLP. The assets of an existing entity are transferred to a master limited partnership, and the business is henceforth conducted as an MLP. The Boston Celtics's conversion into an MLP is an example.

Stepped-up asset basis
The provision allowing asset purchasers to use the price paid for an asset as the starting point for future depreciation rather than the asset's depreciated book value in the hands of the seller.

Stock appreciation right (SAR)
Part of an executive compensation program to align managers' interests with those of shareholders. SARs are issued to managers, giving them the right to purchase stock on favorable terms; the exercise price can be as low as 50% of the stock price at issuance; maximum life is 10 years.

Stock bonus plan
A defined contribution pension plan in which the firm contributes a specified number of shares to the plan annually. The benefits to plan beneficiaries depend on the stock performance.

Stock lockup
An option to buy some fraction of the target stock at the first bidder's initial offer when a rival bidder wins.

Strategy
The long-range planning process for an organization. A succession of plans (with provisions for implementation) for the future of a firm.

Strip financing
A type of financing, often used in leveraged buyouts, in which all claimants hold approximately the same proportion of each security (except for management incentive shares and the most senior bank debt).

Structural theory
An approach to industrial organization that argues that higher concentration in an industry causes less competition due to tacit coordination or over collusion among the largest companies.

Stub
New shares issued in exchange for old shares in a Ieveraged recapitalization.

Subchapter S corporation
A form of business organization that provides the limited liability feature of the corporate form while allowing business income to be taxed at the personal tax rates of the business owners.

Superior-vote stock
In dual-class stock firms, the class of stock that has more power to elect directors; usually concentrated in the hands of management.

Supermajority
A requirement in many antitakeover charter amendments that a change of control (for example) must be approved by more than a simple majority of shareholders; at least 67% to 90% approval may be required.

Supernormal growth
Growth due to a profitability rate above the cost of capital.

Swaps
Exchanges of one class of securities for another.

SWOT
Acronym for Strengths, Weaknesses, Opportunities, and Threats; an approach to formulating firm strategy via assessments of firm capabilities in relation to the environment.

Synergy
The "2 + 2 = 5' effect. The condition of the output of a combination of two entities being greater than the sum of their individual outputs.

T

Take-out merger
The second-step transaction that merges the acquired firm into the acquirer and thus "takes out" the remaining target shares that were not purchased in the initial (partial) tender offer.

Takeover
A general term that includes mergers and tender offers (acquisitions).

Takeover defenses
Methods employed by targets to prevent the success of bidders' efforts.

Target
The object of takeover efforts.

Targeted share repurchase
Refers to repurchasing the stock of a large blockholder (an unwanted acquirer) at a premium over market price (greenmail).

Tax credit ESOP (TRASOP, PAYSOP)
An employee stock ownership plan that allowed employers to take a credit against their tax liability for contributions up to a specified amount, based on qualified investment in plant and equipment (TRASOP) and/or covered payroll (PAYSOP). Repealed by the Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986.

Tax-free reorganization
A takeover transaction in which the primary consideration paid to obtain the voting stock or assets of the target must be the voting stock of the acquiring firm. (In fact, tax is deferred only until target shareholders sell the stock received.)

Team effects
A form of organization capital; information that helps assign employees for an efficient match of capabilities to tasks and that helps match managers and other employees to form efficient teams.

Team production
Alchian and Demsetz's distinguishing characteristic of a firm. Team output is greater than the sum of the outputs of individual team members working independently (synergy). Increased output cannot be unambiguously attributed to any individual team member.

Tender offer
A method of effecting a takeover via a public offer to target firm shareholders to buy their shares.

Termination fee
The payment or consolation prize to unsuccessful bidders.

Third market
Trading conducted off the organized securities exchanges by institutional investors.

Tin parachutes
Payments to a wide range of the target's employees for terminations resulting from a takeover.

Tobin's q
The ratio of the current market value of the firm's securities to the current replacement costs of its assets; used as a measure of management performance.

Toehold
The initial fraction of a target firm's shares acquired by a bidder.

Top-down planning
An approach to overall firm strategy based on companywide forecasts from top management versus aggregation of segment forecasts.

Total capital requirements
A firm's financing requirements. Two alternative measures: (1) Change in operating working capital plus capital expenditures plus change in net other assets; (2) Change in sum of Interest-Bearing Debt plus Shareholders' Equity.

Total capitalization
The sum of total debt, preferred stock, and equity.

Tracking stock
The parent corporation issues a separate class of common stock whose value is based on the cash flows of a specific division.

Transaction cost
The cost of transferring a good or service across economic units or agents.

Transferable put rights (TPRs)
A share repurchase plan in which puts for a limited time period issued to current shareholders can be resold to others.

Trigger point
The level of share ownership by a bidder at which provisions of a poison pill anti- takeover defense plan are activated.

Trust Indenture Act of 1939 (TIA)
Federal securities regulation of public issues of debt securities of $5 million or more. Specifies requirements to be included in the indenture (the agreement between the borrower and lenders) and sets out the responsibilities of the indenture trustee.

Two-tier tender offer
Tender offers in which the bidder offers a superior first-tier price (e.g., higher or all cash) for a specified maximum number of shares it will accept and simultaneously announces its intentions to acquire remaining shares at a second-tier price (lower and/or securities rather than cash).

Type A, B, O reorganization
Forms of tax-free reorganizations. Type A: Statutory mergers (target merged into acquirer) and consolidations (new entity created). Type B: Stock for stock transaction in which target is liquidated into the acquirer or maintained as a separate operating entity. Type C: Stock-fur=asset transaction in which at least 80% of fair market value of target's property is acquired; target then dissolves.

U

Undervaluation
A firm's securities are selling for less than their intrinsic, or potential, or long-run value for one or more reasons.

Underwritten offerings
Public securities issues that are sold by a firm to an investment banker at a negotiated price; the investment banker then bears the risk of price fluctuations before the securities are sold to the general public.

Unitary company (U-form)
An organization form that is highly centralized under the president. Departments are organized by functions such as research, manufacturing, and marketing. It facilitates rapid decision making. Difficulties arise with multiple products.

V

Value additivity principle (VAP)
A quality of the NPV method of capital budgeting that enables managers to consider each project independently. The sum of project NPVs represents the value added to the corporation by taking them on.

Value-Based Management (VBM)
Relating the firm's strategies and operating decisions to measures of economic value created.

Value chain
An approach to strategy that analyzes the steps or chain of activities in the firm to find opportunities for reducing cost outlays while adding product characteristics valued by customers.

Value drivers
Operating measures that have a major influence on the value of a firm.

Vertical merger
A combination of firms that operate in different levels or stages of the same industry (e.g., a toy manufacturer merges with a chain of toy stores--forward integration; an auto manufacturer merges with a tire company-- backward integration).

Virtual organization
The links of the value chain are brought together by contracts the company makes with its suppliers and customers. This is a form of virtual integration facilitated by a networked computer system or through the Internet.

Voting plan
A poison pill antitakeover defense plan that issues voting preferred stock to target firm shareholders. At a trigger point, .preferred stockholders (other than the bidder for the target) become entitled to supervoting privileges, making it difficult for the bidder to obtain voting control.

Voting trust
A device by means of which shareholders retain cash flow rights to their shares while giving the right to vote those shares to another entity.

W

Wealth transfer
The gain of one type of stakeholder in relation to the associated losses of other stakeholders.

Weighted-average marginal cost of capital (WACC)
The relevant discount rate or investment hurdle rate based on targeted capital structure proportions.

White knight
A more acceptable merger partner sought out by the target of a hostile bidder.

White squire
A third party friendly to management who helps a company avoid an unwanted takeover without taking over the company on its own.

Williams Act of 1968
Federal legislation designed to protect target shareholders from swift and secret takeovers in three ways: (1) Generating more information during the takeover process; (2) requiring minimum period for tender offer to remain open; (3) authorizing targets to sue bidders.

Winner's curse
The tendency that in a bidding contest or in some types of auctions, the winner is the bidder with the highest (overly optimistic) estimate of value. This explains the high frequency of negative returns to acquiring firms in takeovers with multiple bidders.

WOTS UP
Acronym for Weaknesses, Opportunities, Threats, and Strengths; a technique to identify these key elements as part of the alternative process used to develop strategy.

 

資料來源：J. Fred Weston, Mark L. Mitchell, and J. Harold Mulherin, “Takeovers, Restructuring, and Corporate Governance”, Forth Edition, Pearson Educational International