Mergers and Acquisitions Basics

Mergers and Acquisitions Basics: All You Need to Know provides an introduction to the fundamental concepts of mergers and acquisitions. Key concepts discussed include M&As as change agents in the context of corporate restructuring; legal structures and strategies employed in corporate restructuring; takeover strategies and the impact on corporate governance; takeover defenses; and players who make mergers and acquisitions happen. The book also covers developing a business plan and the tools used to evaluate, display, and communicate information to key constituencies both inside and outside the corporation; the acquisition planning process; the negotiation, integration planning, and closing phases; financing transactions; and M&A post-merger integration.

This book is written for buyers and sellers of businesses, financial analysts, chief executive officers, chief financial officers, operating managers, investment bankers, and portfolio managers. Others who may have an interest include bank lending officers, venture capitalists, government regulators, human resource managers, entrepreneurs, and board members. The book may also be used as a companion or supplemental text for undergraduate and graduate students taking courses on mergers and acquisitions, corporate restructuring, business strategy, management, governance, and entrepreneurship.

Describes a broad view of the mergers and acquisition process to illustrate agents' interactions

Simplifies without overgeneralizing

Bases conclusions on empirical evidence, not experience and opinion

Features a recent business case at the end of each chapter

Students and professionals around the world who are studying or working in mergers and acquisitions. The book is especially useful for readers who seek material that lies between intensive and superficial coverage of these subjects. It requires only passing acquaintance with finance, economics, business law, and accounting.

Preface

Acknowledgments

1. Introduction to Mergers and Acquisitions

Mergers and Acquisitions as Change Agents

Why Mergers and Acquisitions Happen

Synergy

Diversification

Strategic Realignment

Hubris and the “Winner’s Curse”

Buying Undervalued Assets (The Q-Ratio)

Mismanagement (Agency Problems)

Managerialism

Tax Considerations

Market Power

Misvaluation

Alternative Forms of Corporate Restructuring

Mergers and Consolidations

Acquisitions, Divestitures, Spinoffs, Carve-Outs, and Buyouts

Friendly versus Hostile Takeovers

Alternative Ways to Increase Shareholder Value

A Case in Point: Mars Buys Wrigley in One Sweet Deal

2. What History Tells Us about M&A Performance

Merger and Acquisition Waves

Why M&A Waves Occur

Similarities and Differences among Merger Waves

Why It is Important to Anticipate Merger Waves

Do Mergers and Acquisitions Pay Off for Shareholders, Bondholders, and Society?

Premerger Returns to Shareholders

Postmerger Returns to Shareholders

Specific Characteristics Vary Acquirer Returns

Aquifer Experience May Not Improve Long-Term Performance of Combined Companies

Bidder Returns Are Good Predictors of Successful Transactions

Bondholder Payoffs

Payoffs for Society

Why Some M&As Fail to Meet Expectations

Overpaying

Overestimating Synergies

Slow Integration

Long-Term Performance is Similar for M&As, Business Alliances, and Solo Ventures

A Case in Point: Consolidation in the Telecommunications Industry

3. Developing Takeover Strategies and the Impact on Corporate Governance

Corporate Governance

Alternative Models of Corporate Governance

Internal Factors That Affect Corporate Governance

Factors External to the Firm

The Role of M&A in Achieving Good Corporate Governance

The Friendly Approach in the Corporate Takeover Market

The Hostile Approach in the Corporate Takeover Market

The Bear Hug: Limiting the Target’s Options

Proxy Contests in Support of a Takeover

The Hostile Tender Offer

What Makes the Aggressive Approach Successful?

Other Tactical Considerations

Developing a Bidding or Takeover Strategy

A Case in Point: Mittal Acquires Arcelor in a Battle of Global Titans

4. Common Takeover Defenses

Pre-offer Defenses

Poison Pills

Shark Repellents

Other Pre-offer Defenses

Post-offer Defenses

Greenmail

White Knights

Employee Stock Ownership Plans

Leveraged Recapitalization

Share Repurchase or Buyback Plans

Corporate Restructuring

Litigation

The Impact of Takeover Defenses on Shareholder and Bondholder Value

Experience Shows Mixed Results

Takeover Defenses May Destroy Shareholder Value

Takeover Defenses May Benefit Initial Public Offerings

Takeover Defenses May Benefit Bondholders

A Case in Point: Verizon Acquires MCI

5. Key Players in Mergers and Acquisitions

Providers of Specialized Services

Investment Banks

Lawyers

Accountants

Proxy Solicitors

Public Relations Firms

Institutional Investors and Lenders

Commercial Banks

Insurance Companies

Pension Funds

Mutual Funds

Hedge and Private Equity Funds

Sovereign Wealth Funds

Venture Capital Firms

Angel Investors

Activist Investors

Mutual Funds and Pension Funds

Hedge Funds and Private Equity Firms

A General Point about Activist Investors

M&A Arbitrageurs

Regulators

Securities and Exchange Commission

Federal Trade Commission and Department of Justice

Other Regulators

A Case in Point: Blackstone Outmaneuvers Vornado to Buy Equity Office Properties

6. Developing the Business Plan as the Initial Phase of the Merger and Acquisition Process

A Planning-Based Approach to Mergers and Acquisitions

Key Business Planning Concepts

The Acquisition Process

Good Planning Expedites Sound Decision Making

Mergers and Acquisitions Are a Process, Not an Event

Building the Business Plan

External Analysis

Determining Where to Compete

Determining How to Compete

Internal Analysis

Defining the Mission Statement

Setting Strategic or Long-Term Business Objectives

Selecting the Appropriate Corporate, Business, and Implementation Strategies

Corporate-Level Strategies

Business-Level Strategies

Implementation Strategies

The Role of Intangible Factors

Functional Strategies

Strategic Controls

The Business Plan as a Communication Document

A Case in Point: Nokia Moves to Establish Industry Standards

7. The Role of the Acquisition Plan, Finding a Target, and Making First Contact

Pre-Target Selection

Plan Objectives

Resource/Capability Evaluation

Management Preferences

Timetable

Searching for Potential Acquisition Targets

Screening the Initial Search Results

Contacting the Selected Target

First Contact

Discussing Value

Preliminary Legal Documents

A Case in Point: K2 Incorporated Acquires Fotoball USA

8. The Negotiation, Integration Planning, and Closing Phases

Negotiation Phase

Refining Valuation

Deal Structuring

Conducting Due Diligence

Developing the Financing Plan

Integration Planning Phase

Earning Trust

Choosing the Integration Manager and Other Critical Decisions

Closing Phase

Assigning Customer and Vendor Contracts

Gaining the Necessary Approvals

Completing the Acquisition/Merger Agreement

Financing Contingencies

Is Closing Ever Simple?

Thoughts on Negotiating Dynamics

Thoughts on Closing the Price Gap

A Case in Point: InBev Buys an American Icon for $52 Billion

9. Financing Transactions

Financing Options: Borrowing

Asset-Based or Secured Lending

Security Provisions and Protective Covenants

Cash-Flow or Unsecured Lenders

Types of Long-Term Financing

Junk Bonds

Leveraged Bank Loans

The “Road Show”

Assessing Risk Associated with Alternative Capital Structures

Financing Options: Equity and Hybrid Securities

Seller Financing

Highly Leveraged Transactions

Financing Transactions by Selling Discretionary Assets

Estimating the Impact of Alternative Financing Structures

Selecting the Appropriate Capital or Financing Structure

The Importance of Stating Assumptions

A Case in Point: Financing LBOs—The SunGard Transaction

10. M&A Postmerger Integration

The Role of Integration in Successful Mergers and Acquisitions

Realizing Projected Financial Returns

The Impact of Employee Turnover

Acquisition-Related Customer Attrition

Rapid Integration Does Not Mean Doing Everything at the Same Pace

Viewing Integration as a Process

Premerger Integration Planning

Putting the Postmerger Integration Organization in Place before Closing

Postmerger Integration Organization: Composition and Responsibilities

Developing Communication Plans for Key Stakeholders

Employees: Addressing the “Me” Issues Immediately

Customers: Undercommitting and Overdelivering

Suppliers: Developing Long-Term Vendor Relationships

Investors: Maintaining Shareholder Loyalty

Communities: Building Strong, Credible Relationships

Creating a New Organization

Establishing a Structure

Developing Staffing Plans

Functional Integration

Revalidating Due Diligence Data

Benchmarking Performance

Integrating Manufacturing Operations

Integrating Information Technology

Integrating Finance

Integrating Sales

Integrating Marketing

Integrating Purchasing

Integrating Research and Development

Integrating Human Resources

Building a New Corporate Culture

Identifying Cultural Issues through Cultural Profiling

Overcoming Cultural Differences

A Case in Point: The Challenges of Integrating Steel Giants Arcelor and Mittal

Glossary

References

Index