
Mergers, Acquisitions, and Other Restructuring Activities
3rd Edition
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
Index
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.
Description
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
Readership
MBA students taking courses in: Mergers & Acquisitions, corporate restructuring, corporate strategy. Secondary market: practitioners, including CFOs, investment bankers, entrepreneurs
Details
- No. of pages:
- 632
- Language:
- English
- Copyright:
- © Academic Press 2005
- Published:
- 28th July 2005
- Imprint:
- Academic Press
- eBook ISBN:
- 9780080511436
Ratings and Reviews
About the Authors

Donald DePamphilis Author
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