Assessing the Creation of Shareholder Value - The Case of Leica Geosystems

Over the past few months, mergers and acquisitions (M&A) have been on the top of many corporate agendas. Not only in the US, but also in Europe was the year 2005 sometimes referred to as “merger wave” with a number of relatively sizeable cross-border transactions. Similarly, M&A activity in Switzerland was on a four-year high, backed by a strong market performance. Given the relevance of an M&A-related topic we are interested whether cor-porate takeovers with a synergy-rationale actually benefit shareholders of the acquiring firm.
We studied the case of Hexagon who acquired Leica Geosystems after a bidding battle against Danaher in 2005. Since Hexagon ended up paying a relatively high premium of 51.4% to Leica shareholders, the transaction appears illustrative to test for a positive return from a Hexagon shareholder’s perspective. If Leica’s market value were equal to the value it represents to Hexagon, the premium paid would be a good measure of the synergy benefits Hexagon expects. However, as broker targets suggest and our DCF valuation confirms, Leica shares were undervalued by the market in the period preceding the takeover announcements. Our thorough analysis will demonstrate that, as a result of Leica’s undervaluation prior to takeover announcements and due to the substantial synergy benefits that could be created through the combination, Hexagons takeover of Leica Geosystems was indeed creating shareholder value for both Hexagon and Leica shareholders.

Inhaltsverzeichnis (Table of Contents)

• 1 Introduction
  • 1.1 Background
  • 1.2 Objective
  • 1.3 Structure
• 2 Theories
  • 2.1 The Concept of Shareholder Value.
  • 2.2 Distinguishing Between Mergers and Acquisitions
  • 2.3 Theories on Corporate Takeovers
    • 2.3.1 Increasing Shareholder Value.
      • 2.3.1.1 Synergies
      • 2.3.1.2 Efficiencies
    • 2.3.2 Hubris The Winner's Curse
    • 2.3.3 Agency Problems
      • 2.3.3.1 Free Cash Flow Hypothesis
      • 2.3.3.2 Market for Corporate Control
• 3 The Swiss M&A Landscape
  • 3.1 The Swiss Market in Year 2005
    • 3.1.1 Favorable Swiss Market Performance
    • 3.1.2 High M&A Transaction Volumes
  • 3.2 Premia Analysis.
  • 3.3 What Are Drivers for M&A?
  • 3.4 Unsolicited Takeover Offers in Switzerland
• 4 In Search of Shareholder Value
  • 4.1 Introduction .
  • 4.2 The Companies Involved
    • 4.2.1 Leica Geosystems
    • 4.2.2 Hexagon
    • 4.2.3 Danaher Corporation
  • 4.3 Transaction Overview.
  • 4.4 Assessing the Return to Hexagon Shareholders.
    • 4.4.1 Broker Targets
    • 4.4.2 Comparables Analysis
    • 4.4.3 Leica DCF Valuation (Stand-Alone)
      • 4.4.3.1 Introduction
      • 4.4.3.2 Method
      • 4.4.3.3 Derivation of the Parameters
      • 4.4.3.4 Results
    • 4.4.4 Leica DCF Valuation (Incl. Synergies)
      • 4.4.4.1 Method
      • 4.4.4.2 Result
    • 4.4.5 Assembling the Pieces: Valuation Summary
    • 4.4.6 How Did the Market React?
• 5 Conclusion

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This term thesis examines the creation of shareholder value in the context of a synergy-based takeover. Specifically, it analyzes the 2005 acquisition of Leica Geosystems by Hexagon, a transaction that involved a substantial premium paid to Leica shareholders. The thesis seeks to determine whether this premium represents a genuine creation of shareholder value for both Hexagon and Leica shareholders.

• The concept of shareholder value and its relevance in mergers and acquisitions.
• Theories on corporate takeovers, including synergy-based acquisitions, hubris, and agency problems.
• The Swiss M&A landscape in 2005, including market performance, transaction volumes, and premium analysis.
• An in-depth analysis of the Hexagon-Leica Geosystems takeover, including the companies involved, the transaction overview, and a valuation of the synergy benefits.
• The market reaction to the takeover announcement and its implications for shareholder value creation.

Zusammenfassung der Kapitel (Chapter Summaries)

Chapter 1 introduces the background of the study, outlining the increasing importance of M&A activity in 2005, particularly in Europe and Switzerland. The chapter also defines the objective of the thesis: to investigate whether the Hexagon-Leica Geosystems takeover created shareholder value. Finally, it outlines the structure of the thesis. Chapter 2 presents the theoretical framework for the study, examining the concept of shareholder value and its application in mergers and acquisitions. It explores various theories on corporate takeovers, including the potential for synergy-based acquisitions, hubris theory, and agency problems. Chapter 3 provides an overview of the Swiss M&A landscape in 2005, highlighting the favorable market performance and high transaction volumes. It also analyzes the premia paid in Swiss takeovers and explores the drivers of M&A activity in the country. Chapter 4 delves into the analysis of the Hexagon-Leica Geosystems takeover, providing detailed information about the companies involved and the transaction overview. This chapter focuses on assessing the return to Hexagon shareholders, analyzing the market reaction to the takeover announcement and its implications for shareholder value creation.

Schlüsselwörter (Keywords)

Shareholder value, mergers and acquisitions (M&A), corporate takeovers, synergy benefits, Hexagon, Leica Geosystems, Swiss M&A landscape, market performance, transaction volumes, premium analysis, valuation, DCF analysis, market reaction.

Details

• Hochschule: Universität Zürich (Swiss Banking Institute)
• Note: 1
• Autor: Patrick Jungo (Autor:in)
• Erscheinungsjahr: 2006
• Seiten: 43
• Katalognummer: V52913
• ISBN (eBook): 9783638484930
• ISBN (Buch): 9783656816232
• Sprache: Englisch
• Schlagworte: Assessing Creation Shareholder Value Case Leica Geosystems