Chapter-11收购、兼并和重组课后题目

M&ADealStructuringProcess:Payment&LegalConsiderationsIfyoucan’tconvincethem,confusethem.—HarryS.TrumanExhibit1:CourseLayout:Mergers,Acquisitions,andOtherRestructuringActivitiesPartIV:DealStructuringandFinancingPartII:M&AProcessPartI:M&AEnvironmentCh.11:PaymentandLegalConsiderationsCh.7:DiscountedCashFlowValuationCh.9:FinancialModelingTechniquesCh.6:M&APostclosingIntegrationCh.4:BusinessandAcquisitionPlansCh.5:SearchthroughClosingActivitiesPartV:AlternativeBusinessandRestructuringStrategiesCh.12:Accounting&TaxConsiderationsCh.15:BusinessAlliancesCh.16:Divestitures,Spin-Offs,Split-Offs,andEquityCarve-OutsCh.17:BankruptcyandLiquidationCh.2:RegulatoryConsiderationsCh.1:MotivationsforM&APartIII:M&AValuationandModelingCh.3:TakeoverTactics,Defenses,andCorporateGovernanceCh.13:FinancingtheDealCh.8:RelativeValuationMethodologiesCh.18:Cross-BorderTransactionsCh.14:ValuingHighlyLeveragedTransactionsCh.10:PrivateCompanyValuationLearningObjectivesPrimaryLearningObjective:ToprovidestudentswithaknowledgeoftheM&AdealstructuringprocessSecondaryLearningObjectives:Toenablestudentstounderstandtheprimarycomponentsoftheprocess,paymentconsiderations,andlegalconsiderationsDealStructuringProcessDealstructuringinvolvesidentifyingTheprimarygoalsofthepartiesinvolvedinthetransaction;Alternativestoachievethesegoals;andHowtosharerisks.TheappropriatedealstructureisthatwhichClearlydefinestherightsandobligationsofthepartiesinvolvedandsatisfiesasmanyoftheirprimaryobjectivesasnecessarytoreachagreementSubjecttoanacceptablelevelofriskQuestions:1.Whatarecommonhighpriorityneedsofpubliccompanyshareholders?Private/familyownedfirmshareholders? 2.Howwouldyoudeterminethehighestpriorityneedsofthepartiesinvolved?MajorComponentsof

DealStructuringProcessAcquisitionvehiclePost-closingorganizationFormofpaymentFormofacquisitionLegalformofsellingentityAccountingConsiderationsTaxconsiderationsFactorsAffectingAlternativeForms

ofLegalEntitiesControlbyownersManagementautonomyContinuityofownershipDurationorlifeofentityEaseoftransferringownershipLimitationonownershipliabilityEaseofraisingcapitalTaxStatus

Question:Ofthesefactors,whichdoyoubelieveisoftenthemostimportant?Explainyouranswer.AcquisitionVehicleAcquirer’sObjective(s)PotentialOrganizationMaximizingmanagementcontrolFacilitatingpostclosingintegrationCorporate(CorS)ordivisionalstructureMinimizingorsharingriskPartnership/jointventureHoldingcompanyGainingcontrolwhilelimitinginvestmentHoldingcompanyTransferringownershipinteresttoemployeesEmployeestockownershipplanPost-ClosingOrganizationAcquirer’sObjective(s)PotentialOrganizationIntegratetargetimmediatelyCentralizecontrolinparentFacilitatefuturefundingCorporateordivisionalstructureImplementearn-outPreservetarget’scultureExitbusinessin5-7yearsAssumeminoritypositionHoldingcompanyMinimizeriskMinimizetaxesPassthroughlossesPartnershipsLimitedliabilitycompaniesSub-ChapterScorporationsDiscussionQuestionsWhatisanacquisitionvehicle?Whataresomeofthereasonsanacquirermaychooseaparticularformofacquisitionvehicle?Whatisapost-closingorganization?Whataresomeofthereasonsanacquirermaychooseaparticularformofpost-closingorganization?FormofPaymentCash(Simplebutcreatesimmediatesellertaxliability)Non-cashformsofpaymentCommonequity(PossibleEPSdilutionbutdeferstaxliability)Preferredequity(Lowershareholderriskinliquidation)Convertiblepreferredstock(Incl.attributesofcommon&pref.)Debt(securedandunsecured;lowerriskinliquidation)Realproperty(Maybetaxadvantagedthrough1031exchange)Somecombination(Meetsneedsofmultipleconstituencies)ClosingthegaponpriceandriskmitigationBalancesheetadjustments(Ignoresoff-balancesheetvalue)Earn-outsorcontingentpayments(Mayshiftrisktoseller)Rights,royalties,andfees(Maycreatecompetitor&sellertaxliability)Collararrangements(Oftenusedifacquirer’ssharepricehasahistoryofvolatility)CollarArrangements1,2Objective:Toguaranteeanofferpricepershare(OPPS)withinarangefortargetfirmshareholders.OfferPricePerShare=ShareExchangeRatio(SER)xAcquirer’sSharePrice(ASP) =OfferPricePerTargetSharexAcquirer’sSharePriceAcquirer’sSharePriceCollarArrangement:DefinesthemaximumandminimumpricerangewithinwhichtheOPPSvaries.SERxASP(lowerlimit)≤OfferPricePerShare≤SERxASP(upperlimit)Example:Atargetagreestoa$50purchasepricebasedonashareexchangeratioof1.25acquirersharesforeachtargetshare.Thevalueoftheeachacquirershareatthetimeoftheagreementis$40pershare.Thetargetshareholderisguaranteedtoreceive$50pershareaslongastheacquirer’ssharepricestayswithinarangeof$35to$45pershare.Theshareexchangeratiofloatswithinthe$35to$45rangeinordertomaintainthe$50purchaseprice.($50/$35)x$35≤($50/$40)x$40≤($50/$45)x$451.4286x$35≤1.25x$40≤1.1111x$451Forafixedvalueagreementthedollarofferpricepershareisfixedandthenumberofsharesexchangedvarieswiththevalueoftheacquirer’sshareprice.Acquirersharepricechangesrequirere-estimatingtheshareexchangeratio.Variableorfloatingexchangeratiosareusedmostoftenwhentheacquirer’ssharepriceisvolatile.Fixedshareexchangeagreements,inwhichtheSERdoesnotvary,aremorecommonsincetheyinvolvebothfirms’sharepricesandallowbothpartiestoshareintheriskorbenefitoffluctuatingshareprices.2SERgenerallycalculatedbasedonthe10to20tradingdayperiodending5dayspriortoclosing.The5-dayperiodprovidestimetocalculatetheappropriateacquirersharepriceandtoincorporateintolegaldocuments.CaseStudy:AlternativeCollarArrangementsBasedonFixedValue(SERFloats)andFixedShareExchangeRatiosOn9/5/2009,FlextronicsagreedtoacquireIDWinastock-for-stockmergerwithanaggregatevalueofapproximately$300million.TheshareexchangeratiousedatclosingwascalculatedusingtheFlextronicsaveragedailyclosingsharepriceforthe20tradingdaysendingonthefifthtradingdayimmediatelyprecedingtheclosing.Transactiontermsidentifiedthefollowingthreecollars:1.FixedValueAgreement(SERfloats-offerpricefixedwithinarange):Offerpricewascalculatedusinganexchangeratiofloatinginsidea10%collaraboveandbelowaFlextronics(acquirer)sharepriceof$11.73andafixedpurchase(offer)priceof$6.55pershareforeachshareofIDW(target)commonstock.Therangeinwhichtheexchangeratiofloatscanbeexpressedasfollows:a[$6.55/$10.55]x$10.55≤[$6.55/$11.73]x$11.73≤[$6.55/$12.90]x$12.90.6209x$10.55≤.5584x$11.73≤.5078x$12.90.6209sharesofFlextronicsstockissuedforeachIDWshare(i.e.,$6.55/$10.55)ifFlextronicsdeclinesbyupto10%.5078sharesofFlextronicsstockissuedforeachIDWshare(i.e.,$6.55/$12.90)ifFlextronicsincreasesbyupto10%2.FixedShareExchangeAgreement(SERfixed-offerpricefloatswithinarange):Offerpricecalculatedusingafixedexchangeratioinsideacollar11%and15%aboveandbelow$11.73resultinginafloatingpurchase(offer)priceiftheaverageFlextronics'stockpriceincreasesordecreasesbetween11%and15%from$11.73pershare.(Seethenextslide.)3.Thetarget,IDW,hastherighttoterminatetheagreementifFlextronics'sharepricefallsbymorethan15%below$11.73.IfFlextronics'sharepriceincreasesbymorethan15%above$11.73,theexchangeratiofloatsbasedonafixedpurchasepriceof$6.85pershare.b(Seethenextslide.)aTheshareexchangeratiovarieswithinarangeofplusorminus10%oftheFlextronics’$11.73shareprice.bIDWisprotectedagainstapotential“freefall”inFlextronicsshareprice,whilethepurchasepricepaidbyFlextronicsiscappedat$6.85.MultiplePriceCollarsAroundAcquirerFlextronics

SharePricetoIntroduceSomePredictability$11.73increasesmorethan15%,offerpricecappedat$6.85$11.73fallsbymorethan15%,IDWmayterminateagreement3$11.73increases(decreases)from11%15%(Offerpricefloatsupto$6.85ordownto$6.18)$11.73increases(decreases)from1%to10%(Offerpricefixedat$6.55)$11.73FlextronicsSharePricePriceIncreaseAboveAcquirerSharePriceof$11.73PriceDecreaseBelowAcquirerSharePriceof$11.73FixedShareExchangeAgreement:AllowsPurchasePricetoChangeWithinaRange1FixedValueAgreement:AllowsFloatingShareExchangeRatiotoHoldPurchasePriceConstant21Fixedshareexchangeagreementrepresentsrangeinwhichacquirerandtargetshareholdersshareriskoffluctuationsinacquirershareprice.2Fixedvalueagreementrepresentsrangeinwhichthetargetshareholdersareprotectedfromfluctuationsintheacquirer’sshareprice.Riskisbornebyacquirer,asdecliningSERwouldresultinmoreacquirersharesbeingissuedandpotentialacquirerEPSdilution.3Riskcappedforbothacquirerandtargetfirms.Flextronics-IDWShareExchangeUsingFixedValue(SERFloats)

andFixedShareExchangeRatioAgreementsOfferPriceOfferPrice%Chg.1.($6.55/$11.73)x$11.73=$6.55%Chg.1$(6.55/$11.73)x$11.73=$6.55FixedValue1($6.55/$11.85)x$11.85=$6.55<1>($6.55/$11.61)x$11.61=$6.552($6.55/$11.96)x$11.96=$6.55<2>($6.55/$11.50)x$11.50=$6.553($6.55/$12.08)x$12.08=$6.55<3>($6.55/$11.38)x$11.38=$6.554($6.55/$12.20)x$12.20=$6.55<4>($6.55/$11.26)x$11.26=$6.555($6.55/$12.32)x$12.32=$6.55<5>($6.55/$11.14)x$11.14=$6.556($6.55/$12.43)x$12.43=$6.55<6>($6.55/$11.03)x$11.03=$6.557($6.55/$12.55)x$12.55=$6.55<7>($6.55/$10.91)x$10.91=$6.558($6.55/$12.67)x$12.67=$6.55<8>($6.55/$10.79)x$10.79=$6.559($6.55/$12.79)x$12.79=$6.55<9>($6.55/$10.67)x$10.67=$6.5510($6.55/$12.90)x$12.90=$6.55<10>($6.55/$10.56)x$10.56=$6.55FixedSER11($6.55/$12.90)x$13.02=$6.61<11>($6.55/$10.56)x$10.44=$6.4812($6.55/$12.90)x$13.14=$6.67<12>($6.55/$10.56)x$10.32=$6.4013($6.55/$12.90)x$13.25=$6.73<13>($6.55/$10.56)x$10.21=$6.3314($6.55/$12.90)x$13.37=$6.79<14>($6.55/$10.56)x$10.09=$6.2615($6.55/$12.90)x$13.49=$6.85<15>($6.55/$10.56)x$9.97=$6.18>15SERfloatsbasedonfixed$6.85offer><15>IDWmayterminateagreement1PercentchangeinFlextronicsshareprice.Allchangesintheofferpricebasedonpercentchangefrom$11.73.PracticeExercise:ConstructingaCollarArrangementNorthropGrummaninitiatedatenderofferfor100%ofTRW’scommonsharesbyofferingtoexchange$47worthofNorthropGrummancommonstock,whosemarketvalueatthattimewas$108,foreachshareofTRWcommonstock.The$47offerpricewouldbeallowedtofluctuatebetweenthesigningofthepurchaseagreementandclosingwithinanarrowrangebyplacingacollarofplus5%orminus5%aroundthe$108NorthropGrummansharepriceonthetenderofferannouncementdate.WhatistheshareexchangeratioimpliedbytheNorthropGrummantenderoffer?WhatarethelowerlimitandupperlimitshareexchangeratiosNorthropGrummanusedinconstructingthecollararrangement?HowdoesthecollararrangementprotectTRWshareholders?NorthropGrummanshareholders?FormofAcquisition(MeansofTransferringOwnership):GovernedbyStateStatutesStatutoryone-stage(compulsory)mergerorconsolidation:Stockswapstatutorymergerbymajorityvoteofbothfirms’shareholdersCashoutstatutorymerger(formofpaymentsomethingotherthanacquirercommonstock)Assetacquisitions(buyingtargetassets)StockforassetsCashforassetsStockacquisitions(buyingtargetstockviatenderoffer)StockforstockCashforstockSpecialapplicationsofbasicstructures2-stagestockacquisitions(Obtaincontrol&implementbackendmerger)TriangularacquisitionsLeveragedbuyoutsSinglefirmrecapitalizations(Minorityshareholder“squeezeout”)1KeyPoint:Eachformrepresentsanalternativemeansoftransferringownership.1Analagoustoabackendmerger.StatutoryOne-StageMergersandConsolidationsStockswapstatutorymerger:Twolegallyseparateandroughlycomparableinsizefirmsmergewithonlyonesurviving.Shareholdersoftarget(selling)firmreceivesharesinthesurvivingfirminexchangefortheirshares.Cash-outstatutorymerger:Sellingfirmshareholdersreceivecash,non-votingpreferredorcommonshares,ordebtissuedbythepurchasingcompany;noacquirershareholdervoterequired.Procedureforstatutorymergers:AssumeFirmBismergedintoFirmAinashareforshareexchangewithFirmAsurviving:FirmAabsorbsFirmB’sassetsandliabilitiesasa“matteroflaw.”BoardsofdirectorsofbothfirmsmustapprovemergeragreementShareholdersofbothfirmsmustthenapprovethemergeragreement,usuallybyasimplemajorityofoutstandingshares.Dissentingshareholdersmustselltheirshares.Exceptionsforshareexchanges:ParentfirmshareholdervotesnotrequiredwhenAcquiringfirmshareholderscannotvoteunlesstheirownershipintheacquiringfirmisdilutedbymorethanone-sixthor16.67%,i.e.,FirmAshareholdersmustownatleast83.33%ofthefirm’svotingsharesfollowingclosing.(Smallscalemergerexception)1Parentfirmholdsover90%ofasubsidiary’sstock.(Parent-submergerexception;alsocalledashort-formmerger)Certainholdingcompanystructuresarecreated(Holdingcompanyexception)NonewacquirersharesmustbeissuedtocompletethedealAdvantages/disadvantages:Alltargetassetsandliabilities(known/unknown)transfertoacquirerasa“matteroflaw,”flexiblepaymentterms(cash/stock),andnominorityshareholdersortransfertaxesbutresponsibleforallliabilitiesandsubjecttoshareholderapproval.1Thiseffectivelylimitstheacquirertoissuingnomorethan20%ofitstotalsharesoutstanding.Forexample,iftheacquirerhas80millionsharesoutstandingandissues16millionnewshares(.2x80),itscurrentshareholdersarenotdilutedbymorethanone-sixth,since16/(16+80)equalsone-sixthor16.67%.Morethan16millionnewshareswouldviolatethesmallmergerexception.AssetAquisitions1Cashforassetsacquisition:Acquiringfirmpayscashfortargetfirm’sassets,acceptingsome,all,ornoneoftarget’sliabilities.Ifsubstantiallyallofitsassetsareacquired,targetfirmdissolvesafterpayingoffanyliabilitiesnotassumedbyacquireranddistributinganyremainingassetsandcashtoitsshareholders2Shareholdersdonotvotebutare“cashedout”Stockforassetsacquisition:Acquirerissuessharesfortarget’sassets,acceptingsome,all,ornoneoftarget’sliabilities.Ifacquirerbuysalloftarget’sassetsandassumesallofitsliabilities,theacquisitionisequivalenttoamerger.Listingrequirementsonmajorstockexchangesrequireacquiringfirmshareholderstoapprovesuchacquisitionsiftheissuanceofnewsharesismorethan20%ofthefirm’soutstandingsharesTarget’sshareholdersmustapprovethetransactionifsubstantiallyallofitsassetsaretobesoldAdvantages/disadvantages:Allowsacquirertoselectonlycertaintargetassetsandliabilities;assetwrite-up&nominorityshareholdersbutlosetaxattributesandassetsnotspecifiedincontractandincurtransfertaxes1Inacquisitions,acquiringfirmsusuallylargerthantargetfirms.2Usually,acquirerpurchases80%ormoreofthefairmarketvalueofthetarget’soperatingassetsandmayassumesomeorallofthetarget’sliabilities.Insomecases,courtshaveruledthattheacquirerisresponsiblefortargetliabilitiesaseffectivelyliquidatingormergingwiththetarget.StockAcquisitionsCashforstockacquisitions:Acquirerbuystarget’sstockwithcashdirectlyfromtarget’sshareholdersandoperatestargetasawholly-orpartially-owned(if<100%oftargetsharesacquired)subsidiaryStockforstockacquisitions:Acquirerbuystarget’sstockdirectlyfromtarget’sshareholders,generallyoperatingtargetinaparent/subsidiarystructureAdvantages/disadvantages:Eliminatesneedfortargetshareholdervote(buyingfromtargetshareholders);taxattributes,licenses,andcontractstransfertoacquirer;andmayinsulateparentfromsubsidiarycreditorsbutresponsibleforallliabilitiesandhaveminorityshareholdersSpecialApplicationsofBasicStructuresTwostagestocktransactions:Firststage:AcquirerbuystargetstockviaatenderoffertogaincontrollinginterestandownstargetasapartiallyownedsubsidiarySecondstage(backendmerger):Acquirermergesapartiallyownedsubsidiaryintoawhollyownedsubsidiarygivingminorityshareholderscashordebtfortheircancelledshares.Alsoknownasa“freezeout”or“squeezeout.”Advantages/disadvantages:Verypopularasacquirersgaincontrolmorerapidlythaniftheyattemptedaone-stepstatutorymergerwhichrequiresboardsandshareholderstoapprovemergeragreementbutmayrequiresubstantialprem