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MERGERS & ACQUISITIONS (M & A)
COURSE OVERVIEW
1) INTRODUCTION
2) LEGAL FRAMEWORK
3) LEGAL PROCEDURES & DOCUMENTS 4) CASE STUDIES
5) CLASS PRESENTATIONS
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DEFINITIONS
MERGER
COMBINATION (between equals)
friendly
stock swap + cash payment transfer of assets and liabilities
ACQUISITION
TAKEOVER (large vs. small)
hostile
acquire/control target company (shares / assets)
TYPES OF MERGERS
STATUTORY MERGER
combination of 2 companies (one survives, other ceases to exist)
surviving company assumes the assets and liabilities of the other company
A + B = A
CONSOLIDATION
2 or more companies join to form an entirely new company
consolidated companies are dissolved, only new company operates
A + B = C
SHORT-FORM MERGER
shareholder approval not necessary
e.g. when stocks are largely held by insider group (e.g. management)
threshold requirement (e.g. 90%)
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TYPES OF MERGERS
SUBSIDIARY (TRIANGULAR) MERGER
target becomes (part of) subsidiary of parent company
S + T = S
protect surviving company from liabilities of target by keeping them within the subsidiary rather than the parent
REVERSE SUBSIDIARY (TRIANGULAR) MERGER
subsidiary of acquirer is merged into target
S + T = T
preserve target company though its control has passed to acquirer
TYPES OF MERGERS
HORIZONTAL
same industry
e.g. competitor + competitor VERTICAL
different production stage
e.g. buyer + seller CONGLOMERATE
different industry
e.g. noncompetitor + noncompetitor
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INTERDISCIPLINARY
OTHER
LABOUR LAW
TAX LAW
COMPETITION LAW CORPORATE
LAW
M&A
MOTIVES FOR M&A
OTHER
TAX SYNERGY
MARKET
“EMPIRE BUILDING”
M&A
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STAKEHOLDERS
CREDITORS
OTHERS
SHAREHOLDERS
CUSTOMERS EMPLOYEES MANAGERS
M&A
FINANCING M&A
LOAN
CAPITAL STOCKS
CASH
M&A
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M&A
PROFESSIONALSVALUATION EXPERTS
ATTORNEYS
ACCOUNTANTS INVESTMENT
BANKERS
M&A
DEFENSE TACTICS
LEVERAGED BUYOUT
EXCLUSIONARY SELF-TENDER
SHARE REPURCHASE
“GREENMAIL”
GOLDEN PARACHUTE
ASSET/LIABILITY RESTRUCTURING
LAW SUITS POISON
PILL STAGGERED
BOARD
M&A
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DEFENSE TACTICS
STAGGERED BOARD
classification of board of directors into three groups, one group elected each year
no immediate control of board POISON PILL
right for existing shareholders to purchase additional shares at a bargain price, usually half the market price, if a bidder acquires a certain percentage of the outstanding shares LAW SUIT
file suit against the bidder alleging violations of antitrust or securities laws ASSET RESTRUCTURING
purchase assets that the bidder does not want or that will create antitrust problems
sell off the assets that the suitor desires to obtain LIABILITY RESTRUCTURING
issuing shares to a friendly third party to dilute the bidder's ownership position
leveraged recapitalization making it difficult for the suitor to finance the transaction
DEFENSE TACTICS
GOLDDEN PARACHUTE
lucrative supplemental compensation packages for target firm's management
activated in the case of a takeover and subsequent resignations of senior executives SHARE REPURCHASE (“GREENMAIL”)
repurchase the shares of an unfriendly suitor at a premium over the current market price EXCLUSIONARY SELF-TENDER
target firm offers to buy back its own stock at a premium from everyone except the bidder LEVERAGED BUYOUT (LBO)
a publicly traded firm "goes private"
group, usually involving existing management, buys up all the publicly held stock
typically structured as LBO (financed primarily with debt secured by the assets of target)