Mergers and Acquisitions Basics: Negotiation and Deal Structuring

Copyright......Page 3
Preface......Page 4
Acknowledgments......Page 8
Introduction to Negotiating Mergers and Acquisitions......Page 9
Senior/Operating Management......Page 10
Investment Bankers......Page 11
Accountants......Page 12
Profiling the Market/Industry......Page 13
Profiling the Firm......Page 15
Transactions in Which Synergy Is Believed to Exist......Page 18
Determining Distribution of Synergy between Acquirer and Target......Page 19
Transactions Involving a Control Premium......Page 20
Prenegotiation: First Contact......Page 21
Letter of Intent......Page 22
Negotiation......Page 23
Developing a Negotiating Strategy......Page 24
Refining Valuation......Page 26
Deal Structuring......Page 27
Key Components of the Deal-Structuring Process......Page 28
Common Linkages within the Deal-Structuring Process......Page 30
Buyer Due Diligence......Page 32
Lender Due Diligence......Page 35
Developing the Financing Plan or Strategy: The Reality Check......Page 36
Things to Think About:......Page 38
Selecting the Form of Acquisition Vehicle and Postclosing Organization......Page 39
Corporate Structure......Page 41
C-Type Corporation......Page 45
Subchapter S Corporation......Page 46
Limited Liability Company......Page 47
Partnership Structures......Page 48
General Partnership......Page 49
Limited Partnerships......Page 50
Employee Stock Ownership Plans......Page 52
Holding Company......Page 54
Choosing the Appropriate Acquisition Vehicle......Page 55
Choosing the Appropriate Postclosing Organization......Page 57
Things to Think About:......Page 61
Form of Payment or Total Consideration......Page 63
Noncash Payment......Page 64
Cash and Stock in Combination......Page 66
Postclosing Price Adjustments......Page 67
Earnouts and Other Contingent Payments......Page 69
Contingent Value Rights......Page 72
Distributed or Staged Payouts......Page 73
Using Collar Arrangements to Preserve Shareholder Value......Page 74
Calculating Share Exchange Ratios......Page 80
Things to Think About:......Page 83
Form of Acquisition......Page 85
Purchase of Assets......Page 86
Advantages and Disadvantages from the Buyer’s Perspective......Page 91
Advantages and Disadvantages from the Seller’s Perspective......Page 92
Purchase of Stock......Page 93
Advantages and Disadvantages from the Buyer’s Perspective......Page 94
Mergers......Page 95
Statutory Consolidations......Page 96
Tender Offers......Page 97
Board Approvals......Page 98
Advantages of Mergers......Page 99
Staged Transactions......Page 100
Preclosing Covenants......Page 101
Indemnification......Page 102
Things to Think About:......Page 106
Tax Structures and Strategies......Page 107
Taxable Transactions......Page 108
Taxable Purchase of Target Assets with Cash......Page 109
Section 338 Election......Page 110
Triangular Cash-Out Mergers......Page 111
Tax-Free Transactions......Page 112
Alternative Tax-Free Reorganizations......Page 115
Expanding the Role of Mergers in Tax-Free Reorganizations......Page 120
Tax-Free Transactions Arising from 1031 “Like-Kind” Exchanges......Page 123
Net Operating Losses......Page 125
Alternative Corporate Minimum Tax......Page 128
Morris Trust Transactions......Page 129
Leveraged Partnerships......Page 130
Legal Form of Selling Entity......Page 131
Things to Think About:......Page 134
Accounting Considerations......Page 137
Generally Accepted Accounting Principles and International Accounting Standards......Page 138
Financial Reporting of Business Combinations......Page 139
SFAS 141R: The Revised Standards......Page 141
Recognizing and Measuring Net Acquired Assets in Step or Stage Transactions......Page 142
In-Process Research & Development Assets......Page 143
SFAS 157: The New Fair Value Framework......Page 144
Balance Sheet Considerations......Page 145
Income Statement and Cash Flow Considerations......Page 151
Recapitalization Accounting......Page 152
Things to Think About:......Page 156
Financing Structures and Strategies......Page 157
Why Financing Structures Matter......Page 158
Financing Strategies: Borrowing......Page 159
Asset-Based or Secured Lending......Page 160
Pledging Receivables and Inventory......Page 161
Security Provisions and Protective Covenants......Page 162
Types of Long-Term Financing......Page 163
Indentures......Page 164
Leveraged Bank Loans......Page 165
Financing Strategies: Equity and Hybrid Securities......Page 166
Financing Strategies: Seller Financing......Page 167
Financing Strategies: SellingDiscretionary Assets......Page 169
Highly Leveraged Transactions......Page 171
Direct Merger......Page 174
Legal Pitfalls of Improperly Structured LBOs......Page 175
Leveraged Buyout Capital Structures......Page 176
Selecting the Appropriate Capital or Financing Structure......Page 177
The Importance of Stating Assumptions......Page 179
Things to Think About......Page 183
The Role of Takeover Tactics and Defenses in the Negotiation Process......Page 185
Alternative Takeover Tactics in the Corporate Takeover Market......Page 186
The Friendly Approach......Page 187
The Aggressive Approach......Page 188
Proxy Contests in Support of a Takeover......Page 189
The Impact of Proxy Contests on Shareholder Value......Page 190
Using a Hostile Tender Offer to Circumvent the Target’s Board......Page 191
Multitiered Offers......Page 192
Developing a Bidding or Takeover Strategy......Page 193
Alternative Takeover Defenses in the Corporate Takeover Market—Pre-offer and Post-offer Defenses......Page 196
Poison Pills......Page 198
Shark Repellents......Page 200
Strengthening the Board’s Defenses......Page 201
Limiting Shareholder Actions......Page 202
Other Shark Repellents......Page 203
White Knight......Page 205
Leveraged Recapitalization......Page 206
Share Repurchase or Buyback Plans......Page 207
Impact on Shareholder and Bondholder Value of Takeover Defenses......Page 208
Things to Think About:......Page 211
Glossary......Page 213
References......Page 221
Index......Page 225