Mergers, Acquisitions, and Other Restructuring Activities (eBook)

Front Cover 1
Mergers, Acquisitions, and Other Restructuring Activities 6
Copyright Page 7
Table of Contents 10
Preface to the Fourth Edition 18
Acknowledgments 24
About the Author 25
Business Case Studies 26
PART I The Mergers and Acquisitions Environment 30
CHAPTER 1 Introduction to Mergers and Acquisitions 32
Inside M& A: Andarko Petroleum Acquires Smaller Competitors
Chapter Overview 32
Building a Common Vocabulary 33
Participants in the Mergers and Acquisitions Process 41
Common Motivations for Mergers and Acquisitions 47
Historical Merger and Acquisition Waves 53
Do Mergers and Acquisitions Pay Off for Shareholders? 55
Do Mergers and Acquisitions Pay Off for Bondholders? 63
Do Mergers and Acquisitions Pay Off for Society? 63
Why Do Mergers and Acquisitions Often Fail to Meet Expectations? 64
Things to Remember 65
Chapter Discussion Questions 66
Chapter Business Case 67
Chapter Business Case 68
References 70
CHAPTER 2 Regulatory Considerations 78
Inside M& A: Justice Department Approves Maytag–Whirlpool Combination Despite Resulting Increase in Concentration
Chapter Overview 79
Federal Securities Laws 79
Antitrust Laws 87
State Regulations Affecting Mergers and Acquisitions 99
National Security-Related Restrictions on Direct Foreign Investment in the United States 100
U.S. Foreign Corrupt Practices Act 101
Regulated Industries 102
Environmental Laws 106
Labor and Benefit Laws 106
Cross-Border Transactions 107
Things to Remember 112
Chapter Discussion Questions 112
Chapter Business Case 113
Chapter Business Case 114
References 117
CHAPTER 3 The Corporate Takeover Market 120
Inside M& A: Hewlett-Packard Family Members Oppose Proposal to Acquire Compaq
Chapter Overview 121
Factors Affecting Corporate Governance 122
Alternative Takeover Tactics in the Corporate Takeover Market 128
Developing a Bidding or Takeover Strategy Devision Tree 135
Alternative Takeover Defenses in the Corporate Takeover Market: Prebid or Postbid 138
Things to Remember 153
Chapter Discussion Questions 154
Chapter Business Case 155
Chapter Business Case 157
References 162
PART II The Mergers and Acquisitions Process 166
CHAPTER 4 Planning 168
Inside M& A: eBay Struggles to Reinvigorate Growth
Chapter Overview 169
A Planning-Based Approach to Mergers and Acquisitions 170
Phase 1: Building the Business Plan 172
The Business Plan as a Communication Document 195
Phase 2: Building the Merger/Acquisition Implementation Plan 197
Things to Remember 203
Chapter Discussion Questions 203
Chapter Business Case 204
Chapter Business Case 206
Appendix A 208
References 209
CHAPTER 5 Implementation 210
Inside M& A: Mattel Overpays for The Learning Company
Chapter Overview 211
Phase 3: The Search Process 211
Phase 4: The Screening Process 215
Phase 5: First Contact 216
Phase 6: Negotiation 220
Phase 7: Developing the Integration Plan 231
Phase 8: Closing 233
Phase 9: Implementing Postclosing Integration 238
Phase 10: Conducting Postclosing Evaluation 239
Things to Remember 240
Chapter Discussion Questions 241
Chapter Business Case 242
Chapter Business Case 248
Appendix A 249
References 250
CHAPTER 6 Integration Mergers, Acquisitions, and Business Alliances 252
Inside M& A: GE’s Water Business Fails to Meet Expectations
Chapter Overview 253
The Role of Integration in Successful Mergers and Acquisitions 254
Viewing Integration as a Process 255
Integrating Business Alliances 285
Things to Remember 286
Chapter Discussion Questions 287
Chapter Business Case 288
Chapter Business Case 289
References 291
PART III Merger and Acquisition Valuation and Modeling 294
CHAPTER 7 A Primer on Merger and Acquisition Cash-Flow Valuation 296
Inside M& A: The Importance of Distinguishing between Operating and Nonoperating Assets
Chapter Overview 297
Required Returns 297
Analyzing Risk 301
Calculating Free Cash Flows 304
Applying Income or Discounted Cash-Flow Methods 309
DCF versus Earnings/Dividend Valuation Controversy 316
Valuing Firms under Special Situations 316
Valuing a Firm’s Debt and Other Obligations 317
Valuing Nonoperating Assets 321
Adjusting the Target Firm’s Equity Value for Nonoperating Assets, Debts, and Other Obligations 326
Things to Remember 327
Chapter Discussion Questions 328
Chapter Practice Problems and Answers 328
Chapter Business Case 332
Chapter Business Case 333
Appendix A 334
References 342
CHAPTER 8 Applying Relative, Asset-Oriented, and Real Option Valuation Methods to Mergers and Acquisitions 344
Inside M& A: A CBS “Decision Tree”
Chapter Overview 344
Applying Relative Valuation (Market-Based) Methods 345
Applying Asset-Oriented Methods 355
Replacement Cost Method 358
Valuing the Firm Using the Weighted Average (Expected Value) Method 358
Analyzing Mergers and Acquisitions in Terms of Real Options 360
Comparing Alternative Approaches to Valuation 370
Things to Remember 372
Chapter Discussion Questions 373
Chapter Practice Problems and Answers 373
Chapter Business Case 377
Chapter Business Case 378
References 382
CHAPTER 9 Applying Financial Modeling Techniques to Value and Structure Mergers and Acquisitions 384
Inside M& A: Using Financial Models to Negotiate Deals
Chapter Overview 384
Limitations of Financial Data 385
Model-Building Process 387
Adjusting the Target’s Offer Price for the Effects of Options and Convertible Securities 402
Factors Affecting Postmerger Share Price 403
Key Merger and Acquisition Model Formulas 407
Merger and Acquisition Model Balance Sheet Adjustment Mechanisms 408
Alternative Applications of Merger and Acquisition Financial Models 421
Things to Remember 423
Chapter Discussion Questions 423
Chapter Practice Problems and Answers 424
Chapter Business Case 425
Appendix A 428
References 430
CHAPTER 10 Analysis and Valuation of Privately Held Companies 432
Inside M& A: When Things Just Do Not Seem Right
Chapter Overview 433
Demographics of Privately Owned Businesses 434
Challenges of Valuing Privately Held Companies 437
Adjusting the Income Statement 440
Applying Valuation Methodologies to Private Companies 446
Reverse Mergers 455
Using Leveraged Employee Stock Ownership Plans to Buy Private Companies 459
Analyzing Private Shareholder Returns 460
Things to Remember 461
Chapter Discussion Questions 462
Chapter Business Case 462
Chapter Business Case 463
References 466
PART IV Deal Structuring and Financing Strategies 470
CHAPTER 11 Structuring the Deal: Payment and Legal Considerations 472
Inside M& A: News Corp.’s Power Play in Satellite Broadcasting Seems to Confuse Investors
Chapter Overview 473
The Deal-Structuring Process 473
Form of Acquisition Vehicle 477
Postclosing Organization 478
Legal Form of Selling Entity 479
Form of Payment or Total Consideration 479
Form of Acquisition 489
Things to Remember 499
Chapter Discussion Questions 499
Chapter Business Case 500
Chapter Business Case 501
References 504
CHAPTER 12 Structuring the Deal: Tax and Accounting Considerations 506
Inside M& A: Meeting the Needs of the Parties Involved
Chapter Overview 507
Tax Considerations 508
Financial Reporting of Business Combinations 526
Things to Remember 531
Chapter Discussion Questions 532
Chapter Business Case 532
Chapter Business Case 535
References 538
CHAPTER 13 Financing Transactions: Private Equity, Hedge Funds, and Leveraged Buyout Structures and Valuation 540
Inside M& A: Cox Enterprises Offers to Take Cox Communications Private
Chapter Overview 541
The Emergence of the Financial Buyer 542
Alternative Financing Options 547
Common Forms of Leveraged Buyout Deal Structures 556
Critical Success Factors 557
Developing an Exit Strategy 561
Impact on Shareholder Returns of Leveraged Buyouts 563
Analyzing Leveraged Buyouts 567
Applying LBO Valuation Models 573
Things to Remember 584
Chapter Discussion Questions 585
Chapter Business Case 585
Chapter Business Case 589
References 590
PART V Alternative Business and Restructuring Strategies 594
CHAPTER 14 Joint Ventures, Partnerships, Strategic Alliances, and Licensing 596
Inside M& A: Getting Wired: Wal-Mart–America Online and Other Internet Marketing Alliances
Chapter Overview 597
Motivations for Business Alliances 598
Critical Success Factors for Business Alliances 604
Alternative Legal Forms of Business Alliances 606
Strategic and Operational Plans 613
Resolving Business Alliance Deal-Structuring Issues 613
Empirical Findings 627
Things to Remember 628
Chapter Discussion Questions 629
Chapter Business Case 629
Chapter Business Case 632
References 633
CHAPTER 15 Alternative Exit and Restructuring Strategies 636
Inside M& A: Financial Services Firms Streamline Their Operations
Chapter Overview 637
Motives for Exiting Businesses 637
Divestitures 643
Spin-Offs and Split-Ups 647
Equity Carve-Outs 650
Tracking, Targeted, and Letter Stocks 652
Split-Offs 655
Voluntary Liquidations (Bust-Ups) 656
Comparing Alternative Exit Restructuring Strategies 657
Choosing among Divestiture, Carve-Out, and Spin-Off Restructuring Strategies 657
Returns to Shareholders 661
Business Failure 665
Things to Remember 674
Chapter Discussion Questions 675
Chapter Business Case 675
Chapter Business Case 678
References 681
CHAPTER 16 Cross-Border Mergers and Acquisitions: Analysis and Valuation 686
Inside M& A: Arcelor Outbids ThyssenKrupp for Canada’s Dofasco Steelmaking Operations
Chapter Overview 687
Motives for International Expansion 689
Common International Market Entry Strategies 692
Planning and Implementing Cross-Border Transactions in Developed Countries 695
Planning and Implementing Cross-Border Transactions in Emerging Countries 704
Valuing Cross-Border Transactions 705
Empirical Studies of Financial Returns to International Diversification 718
Things to Remember 719
Chapter Discussion Questions 720
Chapter Business Case 721
Chapter Business Case 722
References 725
Glossary 732
Index 754