Mergers & Acquisitions Class Notes -yablon sp06

Mergers & Acquisitions Class Notes -yablon sp06 -...

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January 18, 2006 Find D.G.C.L. and 1934 SEC Act yablon@yu.edu Room 516 what’s in it for acquirer and seller motivations for business combinations -economies of scale (sales can be increased without increasing overhead; can sell more efficiently) -entering into a new market (market or product expansion) -don’t want to buy an up-and-coming company -know how or expertise -good will of product name -synergy (2+2=5) [doesn’t always work so well] -market dominance [another form of synergy; a larger share of the market is created] {this could create anti-trust problems} -empire building (big for the sake of being big) [ego driven] -destroying the competition -bidding contests [fiduciary duty to entertain the best deal for the sale of a company will trump contract law] {deal protection measures are normally inserted into the deal; break- up fee} Pfizer/Pharmacia merger reverse triangular subsidiary January 20, 2006 corporation consists of the legal entity (identity), assets (the stuff) and shares (control) -acquire any of these three things and you control the company if you have two companies you can put them together at the level of legal entity and that is the basic structure of the statutory merger company A could acquire all or substantially all of the assets of company B and that is an asset acquisition company A could use its assets or stock to acquire the stock of company B and that is a stock acquisition HYPO You are general counsel to a large publicly traded company, Devourer Inc. Your company would like to acquire the business of Target, Inc., an up and coming internet business whose shares are widely held and publicly traded on NASDAQ. Your
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management has agreed with Target management on prince and other material terms. I. Your management tells you they need to acquire 100% ownership of target as soon as possible, and at the lowest possible transaction cost. What acquisition form will you recommend? -why not asset purchase [valuation problems, identification of assets -stock acquisition is too difficult to get everyone to agree to a price if negotiated independently with each shareholder -statutory merger is best because both sets of management have agreed to the combination of the two companies asset purchase agreement will require more due diligence and specificity than a statutory merger agreement statutory sub-merger -create an acquisition company -structure deal so that acquired company is the surviving entity and the acquisition company goes out of business -this is a reverse triangle merger merger is like legal “magic” shares of company going out of existence cease to exist; the right to receive shares is the compensation for when shares go out of existence statutory merger offers a tax advantage, normally forward or reverse depends on which is the surviving company II. Target is subject of class action lawsuit, and its counsel will not give you a letter stating the suit will have no material adverse effect on the company. Management wants to go ahead with the deal, but only if they can avoid incurring the litigation risk. They
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Mergers & Acquisitions Class Notes -yablon sp06 -...

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