Mergers and Acquisitions Basics

Negotiations form the heart of mergers and acquisitions efforts, for their conclusions contain both anticipated and unforeseen implications. Don DePamphilis presents a summary of negotiating and deal structuring that captures its dynamic process, showing readers how brokers, bankers, accountants, attorneys, tax experts, managers, investors, and others must work together and what happens when they don't. Writtten for those who seek a broadly-based view of M&A and understand their own roles in the process, this book treads a middle ground between highly technical and dumbed-down descriptions of complex events. It mixes theory with case studies so the text is current and useful. Unique and practical, this book can add hard-won insights to anybody's list of M&A titles..

• Presents negotiation as a team effort
• Includes all participants, from investment bankers to accountants and business managers
• Emphasizes the interactive natures of decisions about assets, payments, and appropriate legal structures
• Written for those who seek summarizing, non-technical information

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

Chapter 1. Introduction to Negotiating Mergers and Acquisitions

Key Participants in Negotiating Mergers and Acquisitions

Senior/Operating Management

Investment Bankers

Lawyers

Accountants

Prenegotiation: Profiling the Target Market and Firm

Profiling the Market/Industry

Profiling the Firm

Estimating the Price Range of an Initial Offer

Prenegotiation: First Contact

Confidentiality Agreement

Term Sheet

Letter of Intent

Negotiation

Developing a Negotiating Strategy

Concurrent Activities

Refining Valuation

Deal Structuring

Conducting Due Diligence

Developing the Financing Plan or Strategy: The Reality Check

A Case in Point: Pfizer Acquires Wyeth in an Attempt to Kick-Start Growth

Chapter 2. Selecting the Form of Acquisition Vehicle and Postclosing Organization

Alternative Acquisition Vehicle and Postclosing Organizational Structures

Corporate Structure

Limited Liability Company

Partnership Structures

Equity Partnership or Minority Investment

Employee Stock Ownership Plans

Holding Company

Choosing the Appropriate Acquisition Vehicle

Choosing the Appropriate Postclosing Organization

A Case in Point: Vivendi Universal and GE Combine Entertainment Assets to Form NBC Universal

Chapter 3. Selecting the Form of Payment

Form of Payment or Total Consideration

Cash Payment

Noncash Payment

Cash and Stock in Combination

Managing Risk and Closing the Gap on Price

Postclosing Price Adjustments

Earnouts and Other Contingent Payments

Contingent Value Rights

Distributed or Staged Payouts

Rights, Royalties, and Fees

Using Collar Arrangements to Preserve Shareholder Value

Calculating Share Exchange Ratios

A Case in Point: Boston Scientific Overcomes Johnson & Johnson to Acquire Guidant: A Lesson in Bidding Strategies

Chapter 4. Selecting the Form of Acquisition

Form of Acquisition

Purchase of Assets

Purchase of Stock

Mergers

Staged Transactions

Acquisition Agreements

Representations and Warranties

Preclosing Covenants

Closing Conditions

Indemnification

A Case in Point: Teva Pharmaceuticals Buys Barr Pharmaceuticals to Create a Global Generic Drugs Powerhouse

Chapter 5. Tax Structures and Strategies

Taxable Transactions

Taxable Purchase of Target Assets with Cash

Taxable Purchase of Target Stock with Cash

Section 338 Election

Triangular Cash-Out Mergers

Tax-Free Transactions

Continuity of Interests and Continuity of Business Enterprise

Requirements

Alternative Tax-Free Reorganizations

Expanding the Role of Mergers in Tax-Free Reorganizations

Tax-Free Transactions Arising from 1031 “Like-Kind” Exchanges

Other Tax Considerations Affecting Corporate Restructuring Activities

Net Operating Losses

Corporate Capital Gains Taxes

Alternative Corporate Minimum Tax

Greenmail Payments

Morris Trust Transactions

Leveraged Partnerships

Legal Form of Selling Entity

A Case in Point: "Grave Dancer" Takes Tribune Company Private in an Ill-Fated Transaction

Chapter 6. Accounting Considerations

Limitations of Financial Data

Generally Accepted Accounting Principles and International Accounting Standards

Pro Forma Accounting

Financial Reporting of Business Combinations

SFAS 141R: The Revised Standards

SFAS 157: The New Fair Value Framework

Impact of Purchase Accounting on Financial Statements

Balance Sheet Considerations

Income Statement and Cash Flow Considerations

International Accounting Standards

Recapitalization Accounting

A Case in Point: JDS Uniphase-SDL Merger Results in Huge Write-off

Chapter 7. Financing Structures and Strategies

Why Financing Structures Matter

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"

Financing Strategies: Borrowing

Financing Strategies: Equity and Hybrid Securities

Financing Strategies: Seller Financing

Financing Strategies: Selling Discretionary Assets

Highly Leveraged Transactions

Common Forms of Leveraged Buyout Deal Structures

Lender Commitment Letters

Direct Merger

Subsidiary Merger

Reverse Stock Splits

Legal Pitfalls of Improperly Structured LBOs

Lender Due Diligence

Leveraged Buyout Capital Structures

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

Chapter 8. The Role of Takeover Tactics and Defenses in the Negotiation Process

Alternative Takeover Tactics in the Corporate Takeover Market

The Friendly Approach

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

Using a Hostile Tender Offer to Circumvent the Target's Board

Developing a Bidding or Takeover Strategy

Alternative Takeover Defenses in the Corporate Takeover Market—Pre-offer and Post-offer Defenses

Pre-offer Defenses

Poison Pills

Shark Repellents

Post-offer Defenses

Impact on Shareholder and Bondholder Value of Takeover Defenses

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

Glossary

References

Index