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Mergers, Acquisitions, and Other Restructuring Activities - 3rd Edition - ISBN: 9780123694034, 9780080511436

Mergers, Acquisitions, and Other Restructuring Activities

3rd Edition

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Author: Donald DePamphilis
eBook ISBN: 9780080511436
Imprint: Academic Press
Published Date: 28th July 2005
Page Count: 632
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Table of Contents

PART I The Mergers and Acquisitions Environment

1 Introduction to Mergers and Acquisitions

Overview Building a Common Vocabulary Participants in the Mergers and Acquisitions Process Common Motivations for Mergers and Acquisitions Historical Merger and Acquisition Waves Do Mergers and Acquisitions Pay Off for Shareholders? Do Mergers and Acquisitions Pay Off for Bondholders? Do Mergers and Acquisitions Pay Off for Society? Why Do Mergers and Acquisitions Often Fail to Meet Expectations Things to Remember Chapter Discussion Questions Chapter Business Case: America Online Acquires Time Warner—The Rise and Fall of a Vertically
Integrated Internet and Media Giant* Chapter Business Case: Vodafone AirTouch Acquires Mannesmann in a Record Setting Deal References

2 Regulatory Considerations

Overview Federal Securities Laws Securities Act of 1933 Securities Exchange Act of 1934 Williams Act: Regulation of Tender Offers Sarbanes-Oxley Act of 2002 Antitrust Laws Sherman Act Clayton Act Federal Trade Commission Act of 1914 Hart-Scott-Rodino Antitrust Improvements Act of 1976 Procedural Rules The Consent Decree Antitrust Guidelines for Horizontal Mergers Antitrust Guidelines for Vertical Mergers Antitrust Guidelines for Collaborative Efforts Limitations of Antitrust Laws State Regulations Affecting Mergers and Acquisitions Regulated Industries Environmental Laws Labor and Benefit Laws Cross-Border Transactions Things to Remember Chapter Discussion Questions Chapter Business Case: Exxon and Mobile Merger—The Market Share Conundrum* Chapter Business Case: GE’s Aborted Attempt to Merge with Honeywell References 3 The Corporate Takeover Market: Common Takeover Tactics, Anti-Takeover Defenses, and Corporate Governance

Overview Factors Affecting Corporate Governance Factors Internal to the Firm Factors External to the Firm Alternative Takeover Tactics in the Market for Corporate Control The Friendly Approach: “Sweet Talking the Target” The Aggressive Approach The Bear Hug: Limiting the Target’s Options Proxy Contests in Support of a Takeover Pre-Tender Offer Tactics: Purchasing Target Stock in the Open Market Tender Offers: Circumventing the Target’s Board Other Potential Takeover Strategies Developing a Bidding or Takeover Strategy Decision Tree Alternative Takeover Defenses in the Corporate Takeover Market: Pre- and Post-Bid The Role of Planning Pre-Bid Defenses Poison Pills Shark Repellants Golden, Silver, and Tin Parachutes Post-Bid Defenses Developing the Target’s Defensive Strategy Things to Remember Chapter Discussion Questions Chapter Business Case: Tyco Rescues AMP from Allied Signal* Chapter Business Case: Pfizer Acquires Warner Lambert in a Hostile Takeover References

PART II The Mergers and Acquisitions Process: Phases 1–10

4 Planning: Developing Business and Acquisition Plans—Phases 1 and 2 of the Acquisition Process

Overview A Planning-Based Approach to Mergers and Acquisitions Key Business Planning Concepts The Acquisition Process Phase 1: Building the Business Plan Key Activities External Analysis Determining Where to Compete Determining How to Compete Internal Analysis Defining the Mission Statement Setting Strategic or Long-Term Objectives Selecting the Appropriate Corporate Level Strategy Selecting the Appropriate Business Level Strategy Selecting the Appropriate Implementation Strategy Functional Strategies Strategic Controls The Business Plan as a Communication Document Phase 2: Building the Merger/Acquisition Implementation Plan Management Objectives Market Analysis Resource Availability Management Preferences Schedule Things to Remember Chapter Discussion Questions Chapter Business Case: Consolidation in the Global Pharmaceutical Industry—The Glaxo Wellcome and SmithKline Beecham Example* Chapter Business Case: Pepsi Buys Quaker Oats in a Highly Publicized Food Fight Appendix A: Common Sources of Economic, Industry, and Market Data References

5 Implementation: Search through Closing— Phases 3 to 10

Overview Phase 3: The Search Process Initiating the Search Brokers and Finders Phase 4: The Screening Process Phase 5: First Contact Alternative Approach Strategies Discussing Value Preliminary Legal Documents Phase 6: Negotiation Developing a Negotiating Strategy Defining the Purchase Price Refining Value Deal Structuring Conducting Due Diligence Developing the Financing Plan: The Reality Check Phase 7: Developing the Integration Plan Earning Trust Earn-Outs Choosing the Integration Manager Phase 8: Closing Assigning Customer and Vendor Contracts Gaining the Necessary Approvals Completing the Definitive Agreement Is Closing Ever Simple? Phase 9: Implementing Post-Closing Integration Communication plans Employee Retention Satisfying Cash Flow Requirements Employing Best Practices Cultural Issues Phase 10: Conducting Post-Closing Evaluation Things to Remember Chapter Discussion Questions Chapter Business Case: The Anatomy of a Transaction: K2 Incorporated Acquires Fotoball USA* Chapter Business Case: Cingular Acquires AT&T Wireless in a Record-Setting Cash Transaction Appendix A: Legal Due Diligence Preliminary Information Request References

6 Integration: Mergers, Acquisitions, and Business Alliances

Overview The Role of Integration in Successful Mergers and Acquisitions Realizing Projected Financial Returns The Impact of Employee Turnover Acquisition-Related Customer Attrition Viewing Integration as a Process Integration Planning Developing Communication Plans: Talking to Key Stakeholders Creating a New Organization Developing Staffing Plans Functional Integration Building a New Corporate Culture Integrating Business Alliances Integrating Mechanisms Things to Remember Chapter Discussion Questions Chapter Business Case: Daimler Acquires Chrysler—Anatomy of a Cross-Border Transaction* Chapter Business Case: The Travelers and Citicorp Integration Experience References

PART III Merger and Acquisition Tools and Concepts

7 A Primer on Merger and Acquisition Valuation

Overview Required Returns Analyzing Risk Calculating Free Cash Flows Time Value of Money Alternative Approaches to Valuation Applying Income or Discounted Cash Flow Methods Estimating the Market Value of the Firm’s Debt Valuing Firms under Special Situations Firms with Temporary Problems Firms with Longer-Term Problems Cyclical Firms Applying Market-Based (Relative Value) Methods Applying Asset-Oriented Methods
Valuing the Firm Using the Weighted Average Method Analyzing Mergers and Acquisitions in Terms of Real Options Identifying Real Options Embedded in M&A Decisions Applying Real Options to Value Mergers and Acquisitions Valuing Put Options Valuing Non-Operating Assets Adjusting the Target Firm’s Equity Value for Non-Operating Assets and Liabilities Things to Remember Chapter Discussion Questions Chapter Practice Problems and Answers Chapter Business Case: The Hunt for Elusive Synergy -- @Home Acquires Excite* References

8 Applying Financial Modeling Techniques to Value and Structure Mergers and Acquisitions

Overview Limitations of Financial Data Model-Building Process Step 1: Value Acquirer and Target Firm as Standalone Businesses Step 2: Value Acquirer and Target Firm Including Synergy Step 3: Determine Initial Offer Price for Target Firm Step 4: Determine the Combined Firm’s Ability to Finance the Transaction Factors Affecting Post-Merger Share Price Share Exchange Ratios Estimating Post-Merger Earnings Per Share Estimating Post-Merger Share Price Key M&A Model Formulas M&A Model Balance Sheet Adjustment Mechanisms Alternative Applications of M&A Models When the Acquirer or Target is Part of a Larger Legal Entity Joint Ventures and Business Alliances Things to Remember Chapter Discussion Questions Chapter Practice Problems Chapter Business Case: Ford Acquires Volvo’s Passenger Car Operations* Appendix A: Commonly Used Financial Ratios References

9 Analysis and Valuation of Privately Held Companies

Overview Challenges of Valuing Privately Held Companies Lack of Externally Generated Information Lack of Internal Controls and Inadequate Reporting Systems Firm Specific Problems Common Forms of Manipulating Reported Income Adjusting the Income Statement Making Informed Adjustments Areas Commonly Understated Areas Commonly Overlooked Applying Valuation Methodologies to Private Companies Defining Value Hiring Valuation Professionals Selecting the Appropriate Valuation Methodology Developing Capitalization Rates Estimating Marketability or Liquidity Discounts Reverse Mergers The Value of Corporate Shells Avoiding the Cost of Going Public Exploiting Intangible Value Using Leveraged Employee Stock Ownership Plans to Buy Private Companies Analyzing Private Shareholder Returns Things to Remember Chapter Discussion Questions Chapter Business Case: Valuing a Privately Held Company* Chapter Business Case: Pacific Wardrobe Acquires Surferdude Apparel by A Skillful Structuring of the Acquisition Plan References

10 Structuring the Deal: Payment, Legal, Tax, and Accounting Considerations

Overview The Deal-Structuring Process Key Components Common Linkages Form of Acquisition Vehicle Post-Closing Organization Legal Form of Selling Entity Form of Payment or Total Consideration Non-Cash Forms of Payment Closing the Gap on Price Using Collar Arrangements to Preserve Shareholder Value Form of Acquisition Purchase of Assets Purchase of Stock Mergers Tax Considerations Taxable Transactions Tax Free Transactions Net Operating Losses Financial Reporting of Business Combinations Things to Remember Chapter Discussion Questions Chapter Business Case: Vivendi Universal Entertainment and GE Combine Entertainment Assets* Chapter Business Case: JDS Uniphase-SDL Merger Results in Huge Write-Off References

PART IV Alternative Strategies and Structures

11 Financing Transactions: Leveraged Buyout Structures and Valuation

Overview The Emergence of the Financial Buyer Characteristics of LBOs in the Early 1980s LBOs in the Mid-to-Late 1980s LBOs in the 1990s and Beyond Alternative Financing Options Asset Based or Secured Lending Security Provisions and Protective Covenants Cash Flow or Unsecured Lenders Junk Bonds Other Sources of Funds Common Forms of Leveraged Buyout Structures Critical Success Factors Developing an Exit Strategy Impact on Shareholder Returns of Leveraged Buyouts Analyzing Leveraged Buyouts Valuing LBOs: The Variable Risk Method Valuing LBOs: The Adjusted Present Value Method Comparing Variable Risk and Adjusted Present Value Methods
Case Study: Pacific Investors Acquires California Kool in a Leveraged Buyout Shareholder and Public Policy Issues Things to Remember Chapter Discussion Questions Chapter Business Case: Buyout Firms Acquire Yellow Pages Business in Largest LBO Since 1980s* Chapter Business Case: RJR Nabisco Goes Private—Key Shareholder and Public Policy Issues References

12 Shared Growth and Shared Control Strategies: Joint Ventures, Partnerships, Strategic Alliances, and Licensing

Overview Motivations for Business Alliances Critical Success Factors for Business Alliances Alternative Legal Forms of Business Alliances Corporate Structures Limited Liability Companies Partnership Structures Franchise Alliances Equity Partnerships Written Contracts Strategic and Operational Plans Resolving Business Alliance Deal Structuring Issues Scope Duration Legal Form Governance Resource Contribution and Ownership Determination Financing Ongoing Capital Requirements Owner or Partner Financing Equity Financing Debt Financing Control Distribution Issues Performance Criteria Dispute Resolution Revision Termination Transfer of Interests Taxes Management and Organization Empirical Findings Things to Remember Chapter Discussion Questions Chapter Business Case: Coca-Cola and Proctor & Gamble’s Aborted Effort to Create a Global Joint
Venture Company* Chapter Business Case: Strains Threaten Verizon and Vodafone Joint Venture: References

13 Alternative Exit and Restructuring Strategies: Divestitures, Spin-offs, Carve-outs, Split-ups, Split-Offs, Bankruptcy, and Liquidation

Overview Motives for Exiting Businesses Divestitures Spin-offs and Split-ups Equity Carve-outs Tracking, Targeted, and Letter Stocks Split-Offs Voluntary Liquidations (Bust-ups) Comparing Alternative Exit Restructuring Strategies Choosing Among Divestiture, Carve-out, and Spin-Off Restructuring Strategies Returns to Shareholders Business Failure Voluntary Settlements with Creditors Outside of Bankruptcy Voluntary Settlements Resulting in Continued Operation Voluntary Settlement Resulting in Liquidation Reorganization and Liquidation in Bankruptcy Bankruptcy Laws and Procedures Strategic Options for Failing Firms Returns to Firms Emerging From Bankruptcy Things to Remember Chapter Discussion Questions Chapter Business Case: The Enron Shuffle---A Scandal to Remember* Chapter Business Case: AT&T—A Poster Child for Restructuring Gone Awry References

PART V Putting It All Together

14 The Acquisition Process: The Gee Whiz Media Case

Part I: Planning Part II: Implementation Gee Whiz Media Case Study Discussion Questions


Contents of CDROM Accompanying Text Book

Acquirer Due Diligence Question List Excel Based Mergers and Acquisitions Valuation and Structuring Model Excel Based LBO Valuation and Structuring Model Excel Based Real Options Valuation Model Solutions to Selected End of Chapter Business Cases Student Chapter PowerPoint Presentations Student Study Guide, Practice Questions and Answers

*The asterisk indicates that a solution to the case study is available on the CDROM accompanying this book.


Dr. Donald DePamphilis explains the real-world of mergers, acquisitions, and restructuring based on his academic knowledge and personal experiences with over 30 such deals himself. The 77 case studies span every industry and countries and regions worldwide show how deals are done rather than just the theory behind them, including cross-border transactions. New additions to the third edition: 17 new cases, with all 77 cases updated, Glossary, real options applications, projecting growth rates.

Key Features

  • Practical, real-world approach with 77 case studies from around the globe


MBA students taking courses in: Mergers & Acquisitions, corporate restructuring, corporate strategy. Secondary market: practitioners, including CFOs, investment bankers, entrepreneurs


No. of pages:
© Academic Press 2005
28th July 2005
Academic Press
eBook ISBN:

Ratings and Reviews

About the Author

Donald DePamphilis

Donald DePamphilis

Donald M. DePamphilis has a Ph.D. in economics from Harvard University and has managed more than 30 acquisitions, divestitures, joint ventures, minority investments, as well as licensing and supply agreements. He is Emeritus Clinical Professor of Finance at the College of Business Administration at Loyola Marymount University in Los Angeles. He has also taught mergers and acquisitions and corporate restructuring at the Graduate School of Management at the University of California, Irvine, and Chapman University to undergraduates, MBA, and Executive MBA students. He has published a number of articles on economic forecasting, business planning, and marketing. As Vice President of Electronic Commerce at Experian, Dr. DePamphilis managed the development of an award winning Web Site. He was also Vice President of Business Development at TRW Information Systems and Services, Director of Planning at TRW, and Chief Economist at National Steel Corporation.

Affiliations and Expertise

Clinical Professor of Finance, Loyola Marymount University, Los Angeles, CA, USA