Lumber company A has had a devil of a time negotiating with the Lumberjack Union, but it buys company B so that they can go from five million acres to eight million acres of forest to kill, digest, and turn into scratchpads.
With a highly unionized labor force, both lumberjack companies had only 10% margins, and few resources to invest in technology. Combined, however, with their enormous new scale, it makes financial sense to replace two-thirds of their lumberjacks with robots, a.k.a., the Tree Slayers.
The would-be acquired lumberjack company B knows the math, because they've taken a couple of awesome finance courses on Shmoop, and while as a stand-alone company they might be worth 14x earnings, as they key to unlock the Tree Slayer and a new era of high-margin tree cutting, lumberjack company B will be smart enough to demand a big acquisition premium.
That is, instead of their steady state 14x earnings valuation, they'll ask for and probably get something closer to 20x earnings or more, as the acquisition premium here is warranted in the creation of this new behemoth tree cutting company, which everyone is happy about.
Except the trees. And the squirrels who lived in them. And the birds. And the atmosphere...
Related or Semi-related Video
Finance: What is the Williams Act?5 Views
finance a la shmoop what is the Williams Act
well it's 28 Grand Slam singles titles 26 in doubles eight Olympic gold medals [William's sisters career stats appear]
a successful designer clothing company and an interior design firm yeah like
you really thought shmoop wouldn't go there for this one come on the Williams
Act the financial one is actually about making acquisitions or takeovers fair
and square you know like a tennis court before 1968 when the Williams Act 1.0 [People playing tennis]
was enacted mega glopped gargantuan strollers could launch a takeover bid
for micro Corp shakers Rattlers and Hum to make a vertically integrated
near-monopoly in baby hardware the bid could have come in on a Thursday giving [Bid appears on calendar]
shareholders 48 hours to respond with say a 20% premium over the current share
price take it by noon Monday or leave it in the deal's off the table shareholders
would then have to quickly scramble to figure out this was no is this a fair [Woman scrambling away]
deal a steal or something else done just to disrupt the market well a bunch of
companies were quote stolen unquote this way with boards having to scramble and [Robber running away from police]
often ending up with less than optimal or full value that they were supposed to
get for their shareholders who they represent so the Williams Act came along
and required there to be a whole range of filings and disclosures whenever a
public takeover was announced like the price the terms the mix of stock and
cash what the newly composed company would look like it's out its out cetera
and it also required that there be at least five days from when the initial [Five days on calendar highlighted]
takeover was announced to there being any kind of definitive agreement and
then quickly investors realized that five days wasn't long enough so less
than a decade later yeah things move slowly in a financial regulatory world [Cash falling]
the Williams Act pause button was extended to 20 days and that's where
things stand today so yeah the Williams Act ensures [Williams act stamped fairness]
fairness or at least it tries to and that fairness you know which cannot be
said for the taking no prisoners Williams sisters those two do not know
the meaning of mercy [Tennis ball hits girl on the head]
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