chapter_11收购、兼并和重组课后题目概要1

M&A Deal Structuring Process: Payment & Legal Considerations,If you cant convince them, confuse them. Harry S. Truman,Learning Objectives,Primary Learning Objective: To provide students with a knowledge of the M&A deal structuring processSecondary Learning Objectives: To enable students to understandthe primary components of the process,payment considerations, and legal considerations,Deal Structuring Process,Deal structuring involves identifyingThe primary goals of the parties involved in the transaction;Alternatives to achieve these goals; andHow to share risks.The appropriate deal structure is that whichClearly defines the rights and obligations of the parties involved and satisfies as many of their primary objectives as necessary to reach agreementSubject to an acceptable level of riskQuestions: 1. What are common high priority needs of public company shareholders? Private/family owned firm shareholders? 2. How would you determine the highest priority needs of the parties involved?,Major Components of Deal Structuring Process,Acquisition vehiclePost-closing organizationForm of paymentForm of acquisitionLegal form of selling entityAccounting ConsiderationsTax considerations,Factors Affecting Alternative Forms of Legal Entities,Control by ownersManagement autonomyContinuity of ownership Duration or life of entityEase of transferring ownership Limitation on ownership liabilityEase of raising capitalTax StatusQuestion: Of these factors, which do you believe is often the most important? Explain your answer.,Acquisition Vehicle,Post-Closing Organization,Discussion Questions,What is an acquisition vehicle? What are some of the reasons an acquirer may choose a particular form of acquisition vehicle?What is a post-closing organization? What are some of the reasons an acquirer may choose a particular form of post-closing organization?,Form of Payment,Cash (Simple but creates immediate seller tax liability)Non-cash forms of paymentCommon equity (Possible EPS dilution but defers tax liability)Preferred equity (Lower shareholder risk in liquidation)Convertible preferred stock (Incl. attributes of common lower risk in liquidation)Real property (May be tax advantaged through 1031 exchange)Some combination (Meets needs of multiple constituencies)Closing the gap on price and risk mitigationBalance sheet adjustments (Ignores off-balance sheet value)Earn-outs or contingent payments (May shift risk to seller)Rights, royalties, and fees (May create competitor & seller tax liability)Collar arrangements (Often used if acquirers share price has a history of volatility),Collar Arrangements1,2,Objective: To guarantee an offer price per share (OPPS) within a range for target firm shareholders.Offer Price Per Share = Share Exchange Ratio (SER) x Acquirers Share Price (ASP) = Offer Price Per Target Share x Acquirers Share Price Acquirers Share PriceCollar Arrangement: Defines the maximum and minimum price range within which the OPPS varies. SER x ASP (lower limit) Offer Price Per Share SER x ASP (upper limit)Example: A target agrees to a $50 purchase price based on a share exchange ratio of 1.25 acquirer shares for each target share. The value of the each acquirer share at the time of the agreement is $40 per share. The target shareholder is guaranteed to receive $50 per share as long as the acquirers share price stays within a range of $35 to $45 per share. The share exchange ratio floats within the $35 to $45 range in order to maintain the $50 purchase price. ($50/$35) x $35 ($50/$40) x $40 ($50/$45) x $45 1.4286 x $35 1.25 x $40 1.1111 x $451For a fixed value agreement the dollar offer price per share is fixed and the number of shares exchanged varies with the value of the acquirers share price. Acquirer share price changes require re-estimating the share exchange ratio. Variable or floating exchange ratios are used most often when the acquirers share price is volatile. Fixed share exchange agreements, in which the SER does not vary, are more common since they involve both firms share prices and allow both parties to share in the risk or benefit of fluctuating share prices.2SER generally calculated based on the 10 to 20 trading day period ending 5 days prior to closing. The 5-day period provides time to calculate the appropriate acquirer share price and to incorporate into legal documents.,Case Study: Alternative Collar Arrangements Based on Fixed Value (SER Floats) and Fixed Share Exchange Ratios,On 9/5/2009, Flextronics agreed to acquire IDW in a stock- for-stock merger with an aggregate value of approximately $300 million. The share exchange ratio used at closing was calculated using the Flextronics average daily closing share price for the 20 trading days ending on the fifth trading day immediately preceding the closing. Transaction terms identified the following three collars:1. Fixed Value Agreement (SER floats-offer price fixed within a range): Offer price was calculated using an exchange ratio floating inside a 10% collar above and below a Flextronics (acquirer) share price of $11.73 and a fixed purchase (offer) price of $6.55 per share for each share of IDW (target) common stock. The range in which the exchange ratio floats can be expressed as follows:a$6.55/$10.55 x $10.55 $6.55/$11.73 x $11.73 $6.55 /$12.90 x $12.90 .6209 x $10.55 .5584 x $11.73 .5078 x $12.90 .6209 shares of Flextronics stock issued for each IDW share (i.e., $6.55/$10.55) if Flextronics declines by up to 10% .5078 shares of Flextronics stock issued for each IDW share (i.e., $6.55 /$12.90) if Flextronics increases by up to 10%2. Fixed Share Exchange Agreement (SER fixed-offer price floats within a range): Offer price calculated using a fixed exchange ratio inside a collar 11% and 15% above and below $11.73 resulting in a floating purchase (offer) price if the average Flextronics stock price increases or decreases between 11% and 15% from $11.73 per share. (See the next slide.)3. The target, IDW, has the right to terminate the agreement if Flextronics share price falls by more than 15% below $11.73. If Flextronics share price increases by more than 15% above $11.73, the exchange ratio floats based on a fixed purchase price of $6.85 per share.b (See the next slide.)aThe share exchange ratio varies within a range of plus or minus 10% of the Flextronics $11.73 share price.bIDW is protected against a potential “free fall” in Flextronics share price, while the purchase price paid by Flextronics is capped at $6.85.,Multiple Price Collars Around Acquirer Flextronics Share Price to Introduce Some Predictability,Price Increase Above Acquirer Share Price of $11.73,Price Decrease Below Acquirer Share Price of $11.73,Fixed Share Exchange Agreement:Allows Purchase Price to Change Within a Range1,Fixed Value Agreement: Allows Floating Share Exchange Ratio to Hold Purchase Price Constant2,1Fixed share exchange agreement represents range in which acquirer and target shareholders share risk of fluctuations in acquirer share price. 2Fixed value agreement represents range in which the target shareholders are protected from fluctuations in the acquirers share price. Risk is borne by acquirer, as declining SER would result in more acquirer shares being issued and potential acquirer EPS dilution.3Risk capped for both acquirer and target firms.,Flextronics-IDW Share Exchange Using Fixed Value (SER Floats) and Fixed Share Exchange Ratio Agreements,Practice Exercise: Constructing a Collar Arrangement,Northrop Grumman initiated a tender offer for 100% of TRWs common shares by offering to exchange $47 worth of Northrop Grumman common stock, whose market value at that time was $108, for each share of TRW common stock. The $47 offer price would be allowed to fluctuate between the signing of the purchase agreement and closing within a narrow range by placing a collar of plus 5% or minus 5% around the $108 Northrop Grumman share price on the tender offer announcement date. What is the share exchange ratio implied by the Northrop Grumman tender offer?What are the lower limit and upper limit share exchange ratios Northrop Grumman used in constructing the collar arrangement?How does the collar arrangement protect TRW shareholders? Northrop Grumman shareholders?,Form of Acquisition (Means of Transferring Ownership): Governed by State Statutes,Statutory one-stage (compulsory) merger or consolidation:Stock swap statutory merger by majority vote of both firms shareholdersCash out statutory merger (form of payment something other than acquirer common stock)Asset acquisitions (buying target assets)Stock for assetsCash for assetsStock acquisitions (buying target stock via tender offer)Stock for stockCash for stockSpecial applications of basic structures2-stage stock acquisitions (Obtain control & implement backend merger)Triangular acquisitionsLeveraged buyoutsSingle firm recapitalizations (Minority shareholder “squeeze out”)1Key Point: Each form represents an alternative means of transferring ownership.,1Analagous to a backend merger.,Statutory One-Stage Mergers and Consolidations,Stock swap statutory merger: Two legally separate and roughly comparable in size firms merge with only one surviving. Shareholders of target (selling) firm receive shares in the surviving firm in exchange for their shares. Cash-out statutory merger: Selling firm shareholders receive cash, non-voting preferred or common shares, or debt issued by the purchasing company; no acquirer shareholder vote required.Procedure for statutory mergers: Assume Firm B is merged into Firm A in a share for share exchange with Firm A surviving:Firm A absorbs Firm Bs assets and liabilities as a “matter of law.”Boards of directors of both firms must approve merger agreementShareholders of both firms must then approve the merger agreement, usually by a simple majority of outstanding shares. Dissenting shareholders must sell their shares.Exceptions for share exchanges: Parent firm shareholder votes not required whenAcquiring firm shareholders cannot vote unless their ownership in the acquiring firm is diluted by more than one-sixth or 16.67%, i.e., Firm A shareholders must own at least 83.33% of the firms voting shares following closing. (Small scale merger exception)1Parent firm holds over 90% of a subsidiarys stock. (Parent-sub merger exception; also called a short-form merger)Certain holding company structures are created (Holding company exception)No new acquirer shares must be issued to complete the dealAdvantages/disadvantages: All target assets and liabilities (known/unknown) transfer to acquirer as a “matter of law,” flexible payment terms (cash/stock), and no minority shareholders or transfer taxes but responsible for all liabilities and subject to shareholder approval.,1This effectively limits the acquirer to issuing no more than 20% of its total shares outstanding. For example, if the acquirer has 80 million shares outstanding and issues 16 million new shares (.2 x 80), its current shareholders are not diluted by more than one-sixth, since 16/(16 + 80) equals one-sixth or 16.67%. More than 16 million new shares would violate the small merger exception.,Asset Aquisitions1,Cash for assets acquisition: Acquiring firm pays cash for target firms assets, accepting some, all, or none of targets liabilities. If substantially all of its assets are acquired, target firm dissolves after paying off any liabilities not assumed by acquirer and distributing any remaining assets and cash to its shareholders2Shareholders do not vote but are “cashed out”Stock for assets acquisition: Acquirer issues shares for targets assets, accepting some, all, or none of targets liabilities.If acquirer buys all of targets assets and assumes all of its liabilities, the acquisition is equivalent to a merger. Listing requirements on major stock exchanges require acquiring firm shareholders to approve such acquisitions if the issuance of new shares is more than 20% of the firms outstanding sharesTargets shareholders must approve the transaction if substantially all of its assets are to be soldAdvantages/disadvantages: Allows acquirer to select only certain target assets and liabilities; asset write-up & no minority shareholders but lose tax attributes and assets not specified in contract and incur transfer taxes1In acquisitions, acquiring firms usually larger than target firms.2Usually, acquirer purchases 80% or more of the fair market value of the targets operating assets and may assume some or all of the targets liabilities. In some cases, courts have ruled that the acquirer is responsible for target liabilities as effectively liquidating or merging with the target.,Stock Acquisitions,Cash for stock acquisitions: Acquirer buys targets stock with cash directly from targets shareholders and operates target as a wholly- or partially-owned (if 100% of target shares acquired) subsidiaryStock for stock acquisitions: Acquirer buys targets stock directly from targets shareholders, generally operating target in a parent/subsidiary structureAdvantages/disadvantages: Eliminates need for target shareholder vote (buying from target shareholders); tax attributes, licenses, and contracts transfer to acquirer; and may insulate parent from subsidiary creditors but responsible for all liabilities and have minority shareholders,Special Applications of Basic Structures,Two stage stock transactions: First stage: Acquirer buys target stock via a tender offer to gain controlling interest and owns target as a partially owned subsidiarySecond stage (backend merger): Acquirer merges a partially owned subsidiary into a wholly owned subsidiary giving minority shareholders cash or debt for their cancelled shares. Also known as a “freeze out” or “squeeze out.”Advantages/disadvantages: Very popular as acquirers gain control more rapidly than if they attempted a one-step statutory merger which requires boards and shareholders to approve merger agreement but may require substantial premium to gain initial control. Triangular acquisitions: Acquirer creates wholly owned sub which merges with target, with either the target or the sub survivingAdvantages: Avoids acquirer shareholder vote as parent sole owner of sub and limits parent exposure to target liabilities; however, acquirer shareholder vote may be required in some states if new stock issued dilutes current shareholders by m