Class 26 MA BSBA 2011 Legal and Deal Structure (1)

Class 26 MA BSBA 2011 Legal and Deal Structure (1) -...

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Unformatted text preview: BSBA599 Mergers & Acquisitions Spring 2011 1 Prof. David Ravenscraft Kenan-Flagler Business School University of North Carolina Session 26-27: Legal, Deal Structure and Integration Final Exam Full 3 hours All multiple choice, cumulative (covers whole course) Open note, open computer, no wireless! 9:30 section Friday April 29 at 8 11 am Rooms 3600 and 3650 11:00 section Saturday April 30 at 12 3 pm Rooms 3000 and 3050 2 3 Acquisition Process STRATEGY - DOES THE MERGER CREATE VALUE? DEAL PROCESS- CAN THE BIDDER CAPTURE THE VALUE? HOW TO PREVENT INTEGRATION PROBLEMS FROM DESTROYING VALUE?-Strategic Planning Corp. Level Strategy Industry Analysis Acq. Strat. (Synergy) Merger Environment Stock Market Eval. -Origination or Sourcing Target Initiated (IB)-Pre-valuation analysis- Financing Decision-Tax & Accounting - Antitrust & Regulation-Initial Contact- Confidentiality Agreement-Prelim Due Diligence-Detailed Valuation -Deal Approval Pitch- Letter of Intent-Extensive Due Diligence- Starts with Due Diligence-Integration Manager & Teams-Integration Plan- Integration Speed, Autonomy, Assimilation-Focus on Problem Solving Deal Structure Deal structure What is the basic structure of the deal? Sale of assets Sale of capital stock (through a merger, a stock purchase, or tender offer) A combination of the above Who owns the assets or securities of the target? public deal widely-held ownership of target shares private deal closely-held business, private equity fund, government, or subsidiary or division How will the buyer pay for the target business? Cash deal Stock or Debt buyer pays seller warrants (options), debt securities A combination of the above Who bears the risks? Collars Earnouts Deal structure What are the tax consequences to the buyer & seller? Tax-free or taxable Ability to step up assets for tax deduction How will the merger accounting impact the balance sheet & income statement? Purchase Accounting Impairment What percent of the target will the buyer own? 100% Greater than 50%, but less than 100% A joint venture or strategic alliance Minority investment Consideration Paid and Deal Financing: Cash, Stock or Debt Cash Cheapest form of financing for firms with excess cash (and there are a lot of them) Still, should give cash back to shareholder if acquisition is not NPV positive Advantage Offer price certain for seller Get 100% of acquisition benefits Signals stock is not overvalued Can step out assets for added depreciation deduction Almost guarantees acquisition will be accretive Disadvantage May not have it Need to compensate target because acquisition is taxable to them and may cause double taxation Stock Advantage Shares acquisition risk (but also benefit) Makes sense if stock is overvalued Probably creates a tax free transaction, so lower price to...
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This note was uploaded on 02/13/2012 for the course BUSI 599 taught by Professor Ravenscraft during the Fall '10 term at UNC.

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Class 26 MA BSBA 2011 Legal and Deal Structure (1) -...

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