BU231 Mergers, Acquisitions & Restructuring Final Exam (2024) || With 100% Accurate Solutions
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Mergers And Acquisitions
BU231 Mergers, Acquisitions & Restructuring Final Exam (2024) || With 100% Accurate Solutions
BU231 Mergers, Acquisitions & Restructuring Final Exam (2024) || With 100% Accurate Solutions
Merger Waves - ANSWER - Mergers comes in waves with the economy
- crash in mergers in early 2000s (dot co...
, BU231 Mergers, Acquisitions &
Restructuring Final Exam (2024) || With
100% Accurate Solutions
Merger Waves - ANSWER - Mergers comes in waves with the economy
- crash in mergers in early 2000s (dot com bubble and 9/11) and in 2008/2009
What generates waves? Change.
- regulatory change: what is allowed changes (ex. telecommunication act of 1996
easing restrictions in media mergers)
- introduction of new tech (ex. rise in MA in dot com era)
- liquidity in the market, availability of financing (lower yield spread; you need cash to
make an acquisition)
- economic shocks (ex. retail mergers following the pandemic)
- opening of global opportunities (ex. global trade agreements)
- growth opportunity (ex. if market value is higher than BV, there is more MA --
Market/Book Ratio indication)
- taxation
- behavioral motives
Reigle-Neal Act of 1994 - ANSWER - allowed interstate mergers of banks -->
increase of interstate mergers after the passing of the act
Merger - ANSWER - Acquirer assumes all the target's assets and liabilities (statutory
merger) and one company survives.
- requires target SH approval (majority)
- known and unknown liabilities are assumed
- deal structured so that acquirer's SH vote is not needed (law sees mergers as
investments)
- acquirer's SH approval is required if shares issued exceed those authorized, and if
issued shares are greater than 20% of outstanding shares
Short Form Merger - ANSWER - No need for a target shareholder meeting and
formal voting if in a tender offer a bidder acquires more than a certain threshold
(50% in DE)
Non-Tendering SH - ANSWER - No one tenders their shares because they want to
hold on to them and make more money after the merger.
- creates a hold out problem
- free riding (Grossman-Hart)
Freezeout Merger - ANSWER - Appraisal rights, fair value, appraisal remedy in cash
offers
- one majority tenders and the non-tendering shares are called...so you can sell or
not sell and lose your shares
- courts will usually allow the freeze out merger because SH have "voted" by
tendering
, - solves the hold out problem
- intermediate form merger enables the bidder in a tender offer to complete the back-
end merger without target SH approval at an ownership threshold that is typically just
a majority of the target's outstanding shares, if some statutory conditions are met (in
DE)
Timeline of a Merger - ANSWER - - filing of a preliminary proxy statement with the
SEC (10 days) before distribution to the SH of target or both companies
- review by the SEC, who may request amendments (30-45 days)
- sending proxy material to SH and vote (20 days)
- total with delays about 60-90 days (market may change in this long time)
Method of Payment - ANSWER - 1. Cash (dollar amount for one share of the target
firm)
2. Stock (number of bidder's shares per one share of the target firm)
3. Mix of stock and cash
4. other securities (rare), contingent compensation (ex. collar)
Merger Forms - ANSWER - 1. Direct Merger: acquiring company directly buys the
target's shares. Target SH's receive consideration from the acquirer. The two
companies merge.
- ex. B is absorbed into A: B gives SH's shares to A and A gives money to B.
2. Triangular (subsidiary) merger: Acquirer forms a wholly-owned subsidiary. The
transaction is done through the subsidiary.
- often employed in tender offers
- Forward: X, the subsidiary, can be absorbed by A, so B is absorbed by A.
- Reverse: X can absorb B and A fully owns B, but B survives as a division of A.
- X becomes the majority or whole owner of B
- X and B become limited liability companies
- A gives money to X. X gives money to B and B gives SH's shares to X.
- approval of target's SH is required
- most common: Reverse Triangular Merger (ex. P&G buys Gillette and becomes the
parent company)
- the two forms may have differing tax consequences
Tender Offer - ANSWER - A public offer to the target's shareholders to sell their
shares to the bidder. The only way for a hostile offer. Often used as a fast way to
complete a friendly merger, following the merger agreement.
- must remain open for at least 20 business days and usually only remains open for
20 days (Williams act)
- quick
1. Conditional - common form, any and all is rare
2. Partial (may need pro-rata allocation)
3. Two-Tier: you offer the first 50.1% of shares tendered a higher offer price than the
rest, which creates pressure to tender since most people will want to tender first.
- rarely done because it is hostile and management can use anti-takeover methods
- coercive
- if you have majority offers tendered, the merger goes through.
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