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35 Cards in this Set
- Front
- Back
What is the primary goal for a buyer in a merger?
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Create a synergy
Effect of whole being greater than sum of parts |
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What are some characteristics of strategic buyers?
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They tend to come from same or related industry
Have long term view Have greater operating synergies More apt to reduce headcount or management More likely to pay large premium |
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What are some characteristics of financial buyers?
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Not industry specific in target selection
Possess shorter time horizons (3-5 years) Seeking trageted return on invested capital (ROIC) Many are private and deals are typically done for cash Tend to retain current management Very price sensitive due to shortened resale time frame |
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What are some characteristics of LBO buyers?
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Use large percentage of debt (often greater than 80%) to finance transactions
Target companies with strong cash flows Seek tragers with defensible positions Typically retain seller's management team Exit strats include: IPO Sale to strategic |
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What are the pros and cons of private and public targets?
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Public targets:
-Dispersed shareholder base -Greater regulation -Robust financials -Easy to value -May be sold easy as whole or part Private: -Concentrated shareholder base -Less regulation -Thinner financials -Maybe more difficult to value |
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Who else influences transactions?
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Buyers and sellers counsel, accountants and advisers
Banks and financiers Large shareholders Proxy solicitation services Governments and unions Regulatory bodies |
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What is pro forma analysis?
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Attempt to create hypothetical statements
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What about asset sales?
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Preferred by buyers
Selling entity continues to exist Buyer may choose new accounting method Seller feels tax on gain Purchase stepped up |
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What about stock sales?
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Selling entity ceases to exist
All assets included Buyer must absorb liabilities Preferred by sellers Seller has no tax issue Purchaser basis not stepped up |
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What is 338(H)(10) Election
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Treats stock sale like an asset sale
Beneficial to buyer |
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What are the two ways to price stock deals?
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Constant share exchange
-Number of shares issued is constant -Neither party knows true value Fixed value -Promises dollar value -Number of shares is altered based on price |
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What is the difference between a floating and fixed collar?
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Buyer and seller agree to fixed exchange ratio if buyers price remains in solid range
Fixed value payment is when buyer promises firms shareholders they will get paid set dollar value if stays in range Many of these agreements contain material adverse clauses is something changes |
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What is a spinoff?
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When each shareholder retains original shares but is also given shares to new entity
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What is a splitoff?
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Corp split into pieces
One group of shareholders ends up owning shares solely Other group owns shares just in split |
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What is a reverse merger?
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Private company buys pubic company and swaps shares for majority stake in public entity
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What is a forward triangle merge?
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Buyer sub merges with seller and seller is liquidated
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What is a reverse triangle merger?
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Sub owned by buyer merges into seller
Seller survives No assets transferred Helps preserve contracts |
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What is an LOI?
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Letter of intent
Also known as Memo of Understanding Non binding |
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What is the auction process?
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Engagement letter
Development of contact / prospect list Creation of teaser Confi Agreements CIM created Initial Bid Procedures letter Data room creation Management Presentations Collection of Initial Bids Creation of Final Bid procedures letter LOI Final Bid acceptance Signing of agreements |
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What are tender offer rules?
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Shareholders must be notified no later than 10 business days from offer
Management must advise shareholders bias no later than 10 business days from date of offer TO must be held open for at least 20 business days If terms altered it must stay open for an additional 10 biz days from change to extend buyer must make public announcement No open market purchases allowed during period |
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What may be tendered?
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Shares owned outright
Shares owned based on convertibles Shares owned based on right or warrant Shares owned based on call (IF exercised) |
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What does SEC Rule 14e-5 say?
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No short tenders
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What does SEC Rule 14e-3 say?
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NO trading while in possession of insider information
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What does SEC Rule 14d-10 say?
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No preferential pricing
All shareholders must be offered same price regardless of ownership Also called best price rule Exception is granted for changes in compensation arrangements for executives Provided arrangements are approved by majority of independent board members |
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What is a one step merger?
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Target obtains approval from shareholders through vote at special meeting
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What happens in a two step merger?
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Acquirer offers to purchase shares of target for cash or proposed exchange offer
-First step is tender offer, no shareholder approval is required from target shareholders -Second step is a short form merger that does not require shareholder agreement Quicker than one step |
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What is a dutch auction?
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Buying back on stock at specified price
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What is a mini-tender?
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Offer to purchase small amounts of shares (5% or less)
TO file not required 13-D not required Offer price is often below fair value Often frowned upon by regulators |
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What do you file for go privates?
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13-E
Summary of terms Proxy |
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Are buying shareholders ever allowed to vote?
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Yes - if greater than 20 percent dilutive
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What is SEC Rule 145?
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Registration rule of 33' act which applies to situations where securities are offered as a result of biz combo
Covers: Mergers Acquisitions Consolidations Re classifications Usually results in S-4 |
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What is SEC rule 165?
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Covers written comm which occurs after announcment of deal
Comm filed prior to registration of any shares (known as Form 425) 425 Filings may cover items such as press releases, comm from senior management |
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What is SEC rule 135?
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Covers potential notice required to be published concerning transfer of company assets
SEC filing not required NOtice must be brief and may only have certain information |
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What is Hart-Scott-Rodino Act (HSR)?
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Federal antitrust act that requires certain parties to file notice with FTC and DOJ if large deal is done
Merger may not complete until 30 days after notice is filed (15 days if all cash deal) HSR also requires financial investors to file and comply with 30 day waiting period unless purchase was for investment purposes only and without control For deals less than 62mm no filing required For deals over 260 filing required Between filing required if one co has 130 plus in revenues while other has at least 13mm Dollar amounts indexed to inflation |
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What is regulation M-A?
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Reg designed to facilitate communications and disclosures made by companies engaged in M&A including:
Cash and stock tender offers M&A Go privates MA summary term sheets provide shareholders with all pertinent info about transaction |