December 2020 CFA Level 2: Study Session 8. Corporate Finance II - Reading 23. Mergers and Acquisitions

Reading 23. Mergers and Acquisitions

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	Reading 23. Mergers and Acquisitions
	1. Definitions and classifications a. classify merger and acquisition (M&A) activities based on forms of integration and relatedness of business activities;
	2. Motives for merger b. explain common motivations behind M&A activity; c. explain bootstrapping of earnings per share (EPS) and calculate a company's postmerger EPS;
	3. Mergers and industry life cycle d. explain, based on industry life cycles, the relation between merger motivations and types of mergers;
	4. Transaction characteristics e. contrast merger transaction characteristics by form of acquisition, method of payment, and attitude of target management;
	5. Takeovers f. distinguish among pre-offer and post-offer takeover defense mechanisms;
	6. Regulation g. calculate and interpret the Herfindahl-Hirschman Index and evaluate the likelihood of an antitrust challenge for a given business combination;
	7. Target company valuation h. compare the discounted cash flow, comparable company, and comparable transaction analyses for valuing a target company, including the advantages and disadvantages of each; i. calculate free cash flows for a target company and estimate the company's intrinsic value based on discounted cash flow analysis; j. estimate the value of a target company using comparable company and comparable transaction analyses;
	8. Bid evaluation k. evaluate a takeover bid and calculate the estimated post-acquisition value of an acquirer and the gains accrued to the target shareholders versus the acquirer shareholders; l. explain how price and payment method affect the distribution of risks and benefits in M&A transactions;
	9. Who benefits from mergers? m. describe characteristics of M&A transactions that create value;
	10. Corporate restructuring n. distinguish among equity carve-outs, spin-offs, split-offs, and liquidation; o. explain common reasons for restructuring.