24. What are advantages and disadvantages of acquisitions?

Advantages and disadvantages of mergers and acquisitions (M&A) are determined by the short-term and long-term company strategic outlook of the new and acquiring companies. This is due to a host of factors including market conditions, differences in business culture, acquisition costs and changes to financial strength surrounding the corporate takeover.

25.Whac is asset stripping?

asset stripping - The process of buying an undervalued company with the intent to sell off its assets for a profit. The individual assets of the company, such as its equipment and property, may be more valuable than the company as a whole due to such factors as poor management or poor economic conditions.

Asset stripping involves selling the assets of a business individually at a profit. market. In these situations, managers of a state-owned company have been known to sell the assets which they control, leaving behind nothing but debts to the state.

For example, imagine that a company has three distinct businesses: trucking, golf clubs and clothing. If the value of the company is currently $100 million but another company believes that it can sell each of its three businesses to other companies for $50 million each, an asset stripping opportunity exists. The purchasing company will then purchase the three-business company for $100 million and sell each company off, potentially making $50 million.

26.What is lbo and mbo?

leveraged buy-out (LBO) — приобретение компаний с использованием заемных и собственных средств инвесторов;

A leveraged buyout (LBO) occurs when an investor, typically financial sponsor, acquires a controlling interest in a company's equity and where a significant percentage of the purchase price is financed through leverage (borrowing). The assets of the acquired company are used as collateral for the borrowed capital, sometimes with assets of the acquiring company.

This kind of acquisition brings benefits to an LBO's financial sponsor in two ways:

1) the investor itself only needs to provide a fraction of the capital for the acquisition

2) assuming the economic internal rate of return on the investment exceeds the weighted average interest rate on the acquisition debt, returns to the financial sponsor will be significantly enhanced.

management buy-out (MBO) — выкуп компаний их менеджментом с использованием заемных и собственных средств (как разновидность LBO).

A management buyout (MBO) is a takeover of a business by the management. If other employees of the business are involved, it is known as an employee buyout. Management buyouts can happen for a number of different reasons. They are typically reported on and discussed in the financial media because they are topics of interest in the business community, and extended negotiations may attract the attention of the mainstream media as well.

27. What is derivatives and what are the main kinds of derivatives?

Derivatives are financial instruments whose value is derived from the value of something else. They generally take the form of contracts under which the parties agree to payments between them based upon the value of an underlying asset or other data at a particular point in time. The main types of derivatives are futures, forwards, options, and swaps.

futures -contract between two parties to exchange a specified asset at a price agreed today (the futures price or the strike price) but with delivery occurring at a specified future date, the delivery date.

forwards -- non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed today. The price agreed upon is called the delivery price, which is equal to the forward price at the time the contract is entered into.

options - derivative financial instrument that specifies a contract between two parties for a future transaction at a reference price. The buyer gains the right, but not the obligation, to engage in that transaction, while the seller incurs the corresponding obligation to fulfill the transaction.

swaps - derivative in which counterparties exchange certain benefits of one party's financial instrument for those of the other party's financial instrument. The benefits in question depend on the type of financial instruments involved.

The main use of derivatives is to reduce risk for one party while offering the potential for a high return (at increased risk) to another.