Chapter-17收购、兼并和重组课后题目教学课件解析

1、Alternative Exit and Restructuring Strategies:Reorganization and Liquidation第1页，共21页。What is important is not adding more years to life but more life to your years. Doug Fields第2页，共21页。Exhibit 1: Course Layout: Mergers, Acquisitions, and Other Restructuring ActivitiesPart IV: Deal Structuring and Fi

2、nancingPart II: M&A ProcessPart I: M&A EnvironmentCh. 11: Payment and Legal ConsiderationsCh. 7: Discounted Cash Flow ValuationCh. 9: Financial Modeling TechniquesCh. 6: M&A Postclosing IntegrationCh. 4: Business and Acquisition PlansCh. 5: Search through Closing ActivitiesPart V: Alternative Busine

3、ss and Restructuring Strategies Ch. 12: Accounting & Tax ConsiderationsCh. 15: Business AlliancesCh. 16: Divestitures, Spin-Offs, Split-Offs, and Equity Carve-OutsCh. 17: Bankruptcy and LiquidationCh. 2: Regulatory ConsiderationsCh. 1: Motivations for M&APart III: M&A Valuation and Modeling Ch. 3: T

4、akeover Tactics, Defenses, and Corporate GovernanceCh. 13: Financing the Deal Ch. 8: Relative Valuation MethodologiesCh. 18: Cross-Border TransactionsCh. 14: Valuing Highly Leveraged Transactions Ch. 10: Private Company Valuation第3页，共21页。Learning ObjectivesPrimary Learning Objective: To provide stud

5、ents with an understanding of alternative strategies for failing businessesSecondary Learning Objectives: To provide students with an understanding ofCriteria for choosing strategy for failing firmsProcess used to file for bankruptcy, voluntary and involuntary settlements inside and outside of court

6、, and voluntary and involuntary liquidation第4页，共21页。Rule of Law and Corporate Asset AllocationThe smooth functioning of capital markets requires rapid and fair resolution of disputes involving the legal rights of borrowers and lendersStudies show that borrowing costs are lower and access to credit e

7、asier in countries which enforce credit rightsTotal cost of financial distress (i.e., inability to meet financial obligations) includes the following:-Employee layoffs-Firm under-investment-Eroding community tax base and blight-Customer dissatisfaction with declining product quality and increasing d

8、elivery times-Delayed payments to suppliers (including lenders)-Higher borrowing costs -Declining shareholder valueBankruptcy plays key role in minimizing these costs by providing a process for resolving these issues in a timely manner.第5页，共21页。BankruptcyApplicable to failing firmsA firm is technica

9、lly insolvent if it is unable to pay its liabilities as they come dueA firm is legally insolvent if a firms liabilities exceed the fair market value of its assetsDesigned to -Protect failing firms from lawsuits by its creditors until decision made to shut-down or continue to operate the firm-Provide

10、 creditors with an efficient means of recovering what they are owedA firm is not considered bankrupt until it or its creditors petition the federal bankruptcy court第6页，共21页。Voluntary Reorganization Outside of Bankruptcy CourtGenerally offers best chance for owners to recover a portion of their inves

11、tmentUsually initiated by debtor firm by requesting relief from creditorsSuch relief often consists of the following:An extension: Creditors agree to lengthen period during which debtor firm can repay its debt. May also include a temporary suspension of both interest and principal repaymentsA compos

12、ition: Creditors agree to settle for less than the full amount they are owedDebt for equity swap: Creditors surrender a portion of their claims in exchange for an ownership position in the firm第7页，共21页。Voluntary Liquidation Outside of Bankruptcy Court If creditors conclude insolvent firms situation

13、cannot be reorganized, liquidation may be only course of actionIf insolvent firm is willing to accept liquidation and all creditors agree, legal proceedings not necessaryCreditors normally prefer liquidations to avoid lengthy and costly litigation第8页，共21页。Reorganization and Liquidation in Bankruptcy

14、In absence of out-of-court voluntary settlement, debtor firm may Seek protection from creditors by petitioning the bankruptcy court or Be forced into bankruptcy by its creditorsBankruptcy allows creditor firm to stop all principal and interest payments and prevents secured creditors from taking poss

15、ession of their collateralU.S. Bankruptcy Code:Chapter 11 deals with reorganization and provides for the debtor to remain in possession, unless court rules otherwiseChapter 7 deals with liquidation and defines priority in which creditors will be paidChapter 15 addresses insolvency issues involving a

16、ssets, lenders, and other parties in various countries第9页，共21页。Procedures for Reorganizing in BankruptcyFiling with the Bankruptcy CourtAppointment of Debtor in Possession or Court TrusteeDevelop and Present Reorganization PlanAcceptance of Reorganization Plan by All PartiesPayment of Court Approved

17、 Expenses第10页，共21页。Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)Pre-BAPCPA: Debtor in possession (DIP) had exclusive right for first 120 days to file a reorganization plan before creditors could submit their own planCourt could at its discretion provide extensions beyond 1

18、20 daysLeases could be extended indefinitely as long as payments madePost-BAPCPA:Limits DIP exclusivity period at 18 months with an additional 2 months to win creditors acceptance of reorganization plan, effectively giving DIP a maximum of 20 months before creditors can submit their plan“Good cause”

19、 lease extensions limited to 90 daysPayments to management employees cannot be more than 10 times amount paid to non-management employees第11页，共21页。Pre-Packaged BankruptciesDebtor negotiates reorganization plan with major creditors well in advance of filing for Chapter 11 Actual votes for a reorganiz

20、ation plan may already have taken place prior to the filing Subsequent Chapter 11 reorganization averages a few months as court only has to approve the planMinority creditors may be required to accept the plan by the courtDebtor may lose NOLs if out of court settlement reached in which creditors exc

21、hange their debt for equity and original shareholders own less than 50 percent of firm. In bankruptcy, debtor may claim NOLsSo-called “pre-negotiated or pre-arranged bankruptcies” differ from pre-packaged bankruptcies in that actual votes or agreements to vote have not yet been reached with the majo

22、rity of creditors, although agreement has been reached with those creditors deemed critical to the process第12页，共21页。Buying Assets from a Firm in Chapter 11Provides opportunity to acquire valuable assets “free and clear” of liabilities.Many Chapter 11 proceedings undertaken to facilitate the sale of

23、a debtors assets or ongoing business.3 ways to buy assets from a firm in bankruptcyAs part of a court approved plan of reorganization;From a post-confirmation liquidating trust;1 or Under Section 363 of the U.S. Bankruptcy CodeSo-called 363 sales have become increasingly popular ways of selling asse

24、ts when time is critical1Once approval of the Chapter 11 plan of reorganization has been confirmed by the court, such trusts are established to dispose of any assets not included in the plan.第13页，共21页。Section 363 BankruptcySection of the U.S. Bankruptcy Code allowing a firm to enter a court-supervis

25、ed sale of assets (usually at auction) as the best means to protect value. Unlike typical bankruptcies, firms may emerge in 30-60 days. Initial prospective buyer sets the initial purchase price and terms and negotiates a “break-up” or “topping fee” to be paid if it is not the successful bidder. Ofte

26、n referred to as a “stalking horse,” initial bidder may conceal the actual buyer.“Credit bids” occur when secured creditors propose to buy the assets. Such bidders can bid up to the amount of the debt owed before offering any cash.Opponents of sale have 10-20 days to file written objections; althoug

27、h the period may be shortened to a few days by the bankruptcy judge.Requirements: Bankruptcy judge must decide ifNegotiations concerning sale must be conducted at an “arms length”Sale in best interests of all stakeholders Purchaser acting in “good faith”Bankruptcy judge decides how sale proceeds dis

28、tributed among secured creditors第14页，共21页。Examples of 363 Sales from Chapter 11General Motors sale of selected assets in 2009:GM split into two companies, one containing the “good assets” and the other consisting of the remaining assets. The new GM consists of 4 brands: Chevrolet, GMC, Buick, and Ca

29、dillac.Ownership distribution in the new company is as follows: U.S. government (60%)1, UAW (17.5%)2, Ontario and Canadian governments (12.5%)3, and bondholders (10%).4Chryslers sale of most of its assets in 2009:Chrysler LLC sold to a new company managed by Fiat that will operate as Chrysler Group

30、LLC, consisting of the Chrysler, Jeep, Dodge and Mopar brands.Ownership distribution of the new company is as follows: UAWs VEBA (55%), Fiat (20% growing to 35% once certain milestones achieved); theUS Government (8%), and the Canadian government (2%).Absolute priority rule5 may have been violated i

31、n that the UAW received for its pension obligations (an unsecured claim) a much higher ownership stake than the value of the cash received by secured creditors (i.e., $.29 on the dollar).1U.S. government agreed to forgive all but $9 billion of its $49.5 billion in loans to GM2United Auto Workers (UA

32、W) agreed to forgive $20 billion GM had pledged to start the Voluntary Employee Beneficiary Association (VEBA) and received $2.5 billion in cash and $6.5 billion in preferred stock paying $585 million in annual dividends3Ontario and Canadian governments agreed to forgive all but $1.7 billon of their

33、 $9.5 billion in loans to GM.4Bondholders agreed to forgive $27.2 billion in GM debt.5Absolute priority rule in the federal bankruptcy code states that no unsecured creditor can receive an interest in a reorganized firm before secured creditors are paid in full or are paid a fair distribution.第15页，共

34、21页。General Motors (GM) Bankruptcy Pre-Bankruptcy Bankruptcy Post-BankruptcyConsolidated GMU.S. & CanadianOperations1All OtherInternationalOperations“Old GM:”UnattractiveAssets2AttractiveAssets“New GM:”U.S. & Canadian Operations3Consolidated GM1Only the U.S. and Canadian operations were included in

35、the GM bankruptcy filing.2”Old GM” contains the unattractive assets of the U.S. and Canadian operations in a trust set up under the protection of the bankruptcy court. These assets are to be liquidated by a court-appointed trustee, with the proceeds going to creditors.3”New GM” represents a new corp

36、oration containing only the attractive assets held by the U.S. and Canadian operations and primarily owned by the U.S. and Canadian governments, a UAW healthcare trust, and the creditors of “Old GM”All OtherInternationalOperations第16页，共21页。Liquidation in BankruptcyIf the bankruptcy court determines

37、reorganization not feasible, failing firm may be forced to liquidatePriority in which claims are paid (per Chapter 7 of U.S. Bankruptcy Code) Past due property taxesSecured creditors up to proceeds of the sale of pledged assetsLegal feesExpenses incurred after involuntary case begun but before trust

38、ee appointedWages not to exceed $2000 per workerUnpaid employee benefit plan contributions up to $2000Unsecured customer deposits of $900 or lessIncome taxes owed federal, state, or local governmentsUnder-funded pension liabilities up to 30% of the firms book valueUnsecured creditorsPreferred shareh

39、olders, up to par value of their stockCommon shareholders, paid out of remaining funds第17页，共21页。Choosing Appropriate Restructuring Strategy: Failing FirmsChoice heavily influenced by the following:Going concern value of debtor firmSale value of debtor firmLiquidation value of debtor firmImplications

40、:If sale value going concern or liquidation value, sell firmIf going concern value sale or liquidation value, reach out of court settlement with creditors or seek bankruptcy protection under Chapter 11If liquidation value sale or going concern value, reach out of court settlement with creditors and

41、liquidate or liquidate under Chapter 7第18页，共21页。Dodd-Frank Act of 2010: Orderly Liquidation Authority (OLA)OLA: Enables FDIC to seize and liquidate systemically significant firms Objectives: To Ensure A speedy liquidation of systemically significant firms;Losses are borne primarily by shareholders and creditors;Losses to taxpayers are minimized; andFirms management removed and may be subject to “clawback.”When used: Request by Treasury secreta