J. Fred Weston

Mergers, restructuring, and corporate control

This book presents recent literature on corporate mergers, acquisitions, takeovers, restructuring, and corporate governance as well as discussions of valuation, cost of capital, and strategic financial planning.This book discusses how MA Boeing-McDonnell Douglas; Ciba-Geigy-Sandoz, Disney-Cap Cities-ABC, and Time Warner-Turner.

Mergers and restructuring in the world oil industry

Abstract This study focuses on the world oil industry since the relevant markets are global. Mergers and acquisitions (M&As) in the petroleum industry reflect the accelerating rate of M&A activity worldwide. The basic change forces are: technological advances, globalization, deregulation, industry dynamics, pressure for economies, and favorable economic environments. The change forces have blurred the boundaries of industries and have multiplied the forms and sources of competition. M&As and restructuring have had positive influences in the performance of the economy. Since the 1980s, real GDP growth in the U.S. has been strong with only short interruptions. During the past 2 decades, almost 2 million new jobs per year have been created. Patterns in the oil industry have mirrored these changes in the economy as a whole, emphasizing technological improvements and cost reductions. Instabilities of prices and other increased risks in the oil industry have triggered M&As and restructuring. Financial analysis of the BP acquisition of Amoco demonstrates that even if a fraction of the estimated cost savings are achieved, market values will be increased. If five major mergers are completed, the HHI for the world oil industry will rise from a very low 389 to 581, still well below the 1,000 critical level specified by the regulatory authorities. Analysis suggests that the BP Amoco acquisition will have positive economic effects on the economy of Alaska.

Financial Distress and Restructuring Models

This paper provides a synthesis of the theoretical literature on financial distress. It employs a two-state framework, which more clearly captures the generalizations of the more complex models. The equation systems that are derived permit the development of a series of examples that convey the logic and intuitions behind the generalizations. The graphics help illuminate aspects of financial distress not treated in the previous literature. The role of risk is treated explicitly. Alternative assumptions generate different predictions of the effects of financial distress on investment efficiency and restructuring strategy. Central to these strategies are the recontracting arrangements between owners, creditors, and the other relevant stakeholders. The resulting framework permits an evaluation of some central provisions of the prevailing U.S. bankruptcy laws.

A Note on the Evaluation of Cancellable Operating Leases

The paper provides a brief review of the analysis of pure financial leases. The second part solves the problem of evaluating the cancellable operating leases by using the Cox, Ross and Rubinstein binomial option pricing method. From the lessors point of view a cancellable operating lease is equivalent to a pure financial lease minus an American put option with a (non-stochastic) declining exercise price. The expected rate of return on a cancellable lease is shown to be higher than the rate on a pure financial lease.

Comparative Models of Social Responsibility

The polar classical capitalist and communist models of achieving the public interest are being changed and further modifications have been advocated. However, weaknesses common to the proposed chan...

Financial Theory and Corporate Policy.

I. FINANCIAL THEORY. 1. Introduction to Capital Markets, Consumption and Investment. 2. Investment Decisions: The Certainty Case. 3. Theory of Choice Under Uncertainty: Utility Theory. 4. State-Preference Theory. 5. Objects of Choice. 6. Market Equilibrium: CAPM and APT. 7. Pricing Contingent Claims: Option Price Theory and Evidence. 8. Futures Contracts and Markets - Term Structure - Cox, Ingersoll, Ross. 9. Multiperiod Aspects of Financial Theory - Real Options - Investment. 10. Efficient Capital Markets: Theory. 11. Efficient Capital Market: Evidence. 12. Information Asymmetry: Agency Cost Theory and Signaling. II. CORPORATE POLICY. 13. The Role of the CFO and Performance Measurement. 14. Valuation and Tax Policy. 15. Capital Structure. 16. Dividend Policy. 17. Applied Issues in Corporate Finance. 18. External Investment Decisions. 19. International Finance: Theory and Evidence. 20. Open-Ended Issues for Research.

Further evaluation of conglomerate performance

Abstract In the early years conglomerates were seen as the financial concept of the future. More recently their economic advantages have been seriously questioned. This article reviews the existing literature on conglomerate performance and extends the investigation through the early seventies. While conglomerates provide investors with less variability from market movements than do nonconglomerate firms, they provide less diversification than closed-end investment companies and mutual funds. Furthermore, risk adjusted performance measures of conglomerates did not differ significantly from those of other firms of portfolios. Thus, conglomerates should be viewed simply as another category of investments that plot along the security market line.

Merger and Acquisitions as Adjustment Processes

The Tichy review needs to be placed in a broader conceptual framework. Declining transportation and communication costs have globalized markets. Technological changes including Internet developments have transformed industries and blurred industry boundaries. Such change forces have required adjustments by all firms. Mergers represent only one of the many strategies business firms have used. In adjusting to changing environments and competitive developments, firms changed the scope and mix of products and markets. Alliances, joint ventures, licensing, franchising, investments modify organization structures and business relationships. Divestitures, spin-offs, split-ups, rollups, consolidations, downsizing, and reorganizations alter the size, focus, growth rates, and vertical structures of firms. The efforts seeking to improve a firms competitive position succeed or fail in various degrees. The many forms of industry and firm adjustment processes make structural-based antitrust guidelines bad policies.The Tichy review needs to be placed in a broader conceptual framework. Declining transportation and communication costs have globalized markets. Technological changes including Internet developments have transformed industries and blurred industry boundaries. Such change forces have required adjustments by all firms. Mergers represent only one of the many strategies business firms have used. In adjusting to changing environments and competitive developments, firms changed the scope and mix of products and markets. Alliances, joint ventures, licensing, franchising, investments modify organization structures and business relationships. Divestitures, spin-offs, split-ups, rollups, consolidations, downsizing, and reorganizations alter the size, focus, growth rates, and vertical structures of firms. The efforts seeking to improve a firms competitive position succeed or fail in various degrees. The many forms of industry and firm adjustment processes make structural-based antitrust guidelines bad policies.

A Note on Capital Budgeting and the Three Rs

STUDY CENTER IN MANAGERIAL ECONOMICS AND FINANCE Working Paper 28-79 A Note on Capital Budgeting and the Three Rs by J. Fred Weston Nai-fu Chen November 21, 1979

Price behavior of deep discount bonds

Abstract With rising interest rate trends, deep discount bonds are more commonly observed. The traditional view has been that, for a given yield change, the changes in bond prices are larger, the longer the maturity. This note shows that, for a deep discount bond, there is a switchover point beyond which the traditional view no longer holds. This is true for percentage as well as for dollar price changes. The traditional view should be corrected to avoid misleading effects on the management of bond portfolios.