Mergers course

Day 1 – growth using mergers & acquisitions

Session 1 – rationale for corporate growth by merger, acquisition or takeover

  • Strategic decision making: do companies need to grow?
  • Acquisition versus organic and joint venture growth
  • What makes a take-over successful? – “The Winner’s Curse”
  • Public and private deals: similarities and differences
  • The progress of a typical transaction
Case study: GDF Suez & International Power – Why some good deals may never happen? And then they do!

Session 2 – the rationale for specific transactions: synergies & benefits

  • Definition of “synergy”
  • Types of transactions
  • Types of synergies
  • Problems with synergies
  • Synergies and the “value matrix”
  • International aspects of merger & acquisition processes

Session 3 – due diligence: friendly and hostile deals

  • Purpose of due diligence process
  • Who will carry it out? Whose responsibility is it?
  • Time frame
  • Sources of information
    • Public
    • Non-public
  • Long form/ short form report
  • Disadvantages of carrying out due diligence in different types of transactions
    • Hostile vs. friendly transactions
    • Public vs. private transactions
  • Tie-in with warranties and indemnities (in private deals)
Case study: the Pfizer & Wyeth merger: building the world’s largest research-based pharmaceutical company
Case study: Shering-Plough: how to manage those distribution channels!
Case study: Sanofi-Genzyme -buying a pipeline in the pharma-industry

Session 4 – planning for merger or acqusition

  • The objectives of commercial due diligence compared to financial legal and specialist due diligence
  • Understanding the target’s business model
  • Planning the optimum amount of due diligence compared to the size and importance of the deal
  • Evaluating the collected information
  • Balancing the extent of the due diligence with warranties and indemnities
  • Analysing the target’s ability to compete in its market
  • Testing the credibility of the target’s projected results
  • Assessing the risks to the target’s operations
  • Tracking cash & revenue movements
Case study: Bharti-MTN: why the deal wouldn’t have worked anyway?

Session 5 – structuring transactions: shares or assets?

  • Buy shares or assets of the target company?
  • Factors for and against either option
  • Reverse takeovers

Session 6 – structuring transactions: valuing & financing the transaction

  • Valuation
    • Appraisal principles
    • Valuation methods
  • Financing
  • Financing choices for raising the cash element of an acquisition:
    • Debt
    • Equity
    • Mixture
  • Buyer/ seller factors in choosing the appropriate instrument
  • Raising the debt for an acquisition
  • Arranging the debt:
    • Working capital overdraft?
    • Syndicated loan?
    • Bond/ eurobond?
  • Particular issues for debt:
    • Fixed rate versus floating rate?
    • Plain debt or convertible bond?
  • Factors in pricing debt instruments
  • Use of hybrid capital/ mezzanine instruments

Session 7  – post-merger integration

  • How does the integration process affect value creation?
    • Pre-merger planning
    • Post-merger planning
Post-merger integration: lessons to be learned (case study: Daimler-Chrysler PM integration)

Day 2 – public/ listed company merger and takeover activity

Session 1 – public offers: the rules

  • Review of general principles (blue book)
  • Relevant European regulation for conduct of public bids (EU Takeover Directive)
  • The six general principles and their application
  • Key code definitions
  • Announcements and independent advice (Rules 1-3)
  • Dealings and restrictions on the acquisition of shares
    • Prohibited dealings (including Rule 4)
    • Consideration to be offered (Rules 6 and 11)
    • Disclosure requirements (Rules 7, 8 and 38)
    • Timing restrictions (Rule 5)
  • Mandatory offers (Rule 9)
  • Voluntary offers
    • The acceptance condition (Rule 10)
    • Subjectivity and pre-conditions (Rule 13)
    • Partial offers (Rule 36)
  • The Competition Commission and the European Commission (including Rule 12)
    • Provisions applicable to all offers
    • Multiple classes of share capital (Rule 14)
    • Convertibles and warrants (Rule 15)
    • Special deals with favourable conditions (Rule 16)

Session 2 – public offers: the timetables

  • Outline bid timetable (Rules 30 to 35)
  • Conduct during the offer
    • Information (Rule 19)
    • Equality of information (Rule 20)
    • Restrictions on frustrating action (Rule 21)
  • Profit forecasts and asset valuations (Rules 28 and 29)

Session 3 – public offers: bidder strategies & tactics (recommended and hostile bids)

  • Timing of bids
  • Buying share stakes in advance
  • Buying shares in the offer
  • Going mandatory
  • Irrevocable undertakings
  • No increase/ no extension statements
  • Special offers?
  • Top-ups and increased offers (whether to, and timing)
  • Deterring a rival bidder
Case study: BHP Billiton & Potash: was it written in the stars that it would end this way?

Session 4 – public offers: target strategies & tactics (hostile bids)

  • Overview of target tactics
    • Back-end – Pension parachute
    • Bankmail – People pill
    • Crown jewel defence – Poison pill
    • Flip-in – Safe harbour
    • Flip-over – Scorched-earth defence
    • Golden parachute – Shark repellent
    • Grey knight – Staggered board of directors
    • Greenmail – Standstill agreement
    • Jonestown defence – Targeted repurchase
    • Killer bees – Top-ups
    • Leveraged recapitalisation – Treasury stock
    • Lobster trap – Trigger
    • Lock-up provision – Voting plans
    • Nancy Reagan defence – White knight
    • Non-voting stock – White squire
    • Pac-Man defence – Whitemail
  • Regulatory (including anti-trust)
  • War of numbers
    • Profit forecasts
    • Increased dividends
    • Revised NAV
    • Cut costs
  • Share buybacks, special dividends, tender offer etc
  • Each tactic is presented alongside an example, with special focus on the technical application of poison pills
Case study: Oracle & Sun – best friends with the European Commission

Session 5 – public offers: both sides’ strategies & tactics (hostile bids)

  • Conflicts of interest
  • Looking at documents
  • Shareholder relations management
  • Proxy fights and activist shareholders
  • Press campaigns
  • Financial and managerial arguments
Case studies:
• Cadbury-Kraft (January 2010): how to fight globalization?
• HP-3Com: international exposure through M&A & a revolting shareholder base
• Air Product and Airgas: the never ending battle – how difficult can it get?

Day 3 – private company merger & takeover activity

Session 1 – private transactions: setting the scene

  • Options for selling a private business
    • Open auction
    • Limited private auction
    • Bilateral
    • Management buy out
  • Motivations of
    • Sellers
    • Buyers

Session 2 – key aspects (acquisitions and disposals)

  • Tips for maximising the outcome of the process
    • Avoiding process and commercial failures – Evaluation of anticipated synergies
    • Planning a successful acquisition – Guidelines on negotiations
    • Good execution – Managing a completion meeting
    • Surmounting initial handicaps when contemplating an acquisition – Fundamental principles of a successful sale
    • Cultivating a winning perspective – Appointment of advisers
    • The contents of an acquisition plan – Structuring the fees of professional advisers
    • Effective deployment of management time – Agreeing the engagement letter
    • Deciding upon an appropriate deal size – Rationale for ‘sell-side’ due diligence
    • Evaluating the target industry – Preparing a non-vendor management
    • Measuring the risk tolerance – Sweetheart deals
    • Screening the likely targets – Grooming the company
    • Refining the list of candidates – Improving the accounting systems
    • How best to approach a chosen target – Handling separation issues
    • The first meeting with the target – Dealing with third parties, the tax authorities and the regulators
    • The contents of a Letter of Intent

Session 3 – private transactions: the 4 key stages (sell-side)

  • Preparation and pricing
    • Presentations to clients
    • Initial indications of value
    • Signing the mandate
    • Vendor’s due diligence
    • Preparing the information memorandum
    • Preparing ancillary documentation
    • Maintaining confidentiality
  • Finding the prospective buyer(s)
    • Drawing up the universe of potential buyers
    • Putting buyers into tiers
    • How to make first contact?
    • Confidentiality agreements
    • Sending out the information package
  • Building up the bids
    • Receipt of first round indicative offers
    • Selection of shortlist for second round
    • Setting up and controlling the data room
    • Arranging site visits
    • Receiving second round bids
    • Selecting and notifying the “winner”
  • Closing the deal
    • Agreeing exclusivity/ running a contract race
    • Negotiating the Sale & Purchase Agreement
    • Satisfying conditions
    • Completion
  • Particularities
    • Locked box arrangements
    • Material changes in outlook and business (model)
    • Stapled financing and acquisition terms sheets (benefits)
    • Managing the data room

Session 4 – private equity buyers vs. other strategic buyers

  • Different philosophies and approaches
  • Different valuation methodologies
  • Entry vs. exit strategy
  • Ratchets
  • Search for value creation

Session 5 – private transactions: documentation & issues

  • Review of key deal documentation
  • Sale and Purchase Agreement
  • Confidentiality agreement
  • Heads of terms/ letters of intent
  • Disclosure and warranties/ escrow account
  • Special issues for protecting the investment:
  • Earn-outs and deferred consideration
  • Representations and warranties
Case studies:
• KKR & Texas Pacific buy TXU
• Blackstone buys Merlin Entertainment
• Corel Holdings L.P.: strangest go-private, M&A, & IPO story of the decade

Course wrap-up and conclusion

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