Mergers & Acquisitions Professor Jefrey Allen

BA 6074 Ofice: 118 F

Ofice ours: By !""oint#ent $14%768%$6$7
&"ring Mo'ule () $011 *+!llen,co-.s#u.e'u
Transactions involving transfers of ownership rights have a signifcant impact
on shareholders, employees, vendors, customers and industry competitors. This
course examines purchase and sale transactions from a selection, structure and
valuation perspective using both case studies and class discussions. Specifc
learning objectives of the course are to:
1 gain an understanding of how buyers and sellers use !"# to increase
value and competitiveness,
$ understand the factors and criteria that increase the probability of a
successful transaction,
% formulate defendable economic rationale in support of a proposed
transaction,
& gain an understanding of how to evaluate potential combinations of
ac'uiring and target frms that are li(ely to create value for both buying
and selling shareholders, and
) utili*e the appropriate valuation techni'ue+s to determine an appropriate
o,er or sale price in a transaction.
-e'uired Text and -eference !aterial
.runer, -obert /. #pplied !ergers " #c'uisitions, 0iley /inance.
1oursepac( available on www.study.net
2ther -eference .oo(s
.er(, 3onathan and 4eter 5e!ar*o, 1orporate /inance, #ddison60esley
+$
nd
ed., $717.
8iggins, -obert, #nalysis for /inancial !anagement, +9
th
ed. :rwin
!c;raw68ill, $77<.
=our fnal grade will be calculated as follows:
$)> S6& analysis +due $?1<
@)> Term project +due appx. %?1$
A 4ossible adjustment up a notch +e.g. . to .A for exceptional
class participation
The university grading scale +#: 9%.7A, #6: 97.769$.99, .A: <@.76<9.99, etc is
used as a basis for assigning grades. Bxtra credit wor( or assignments will not
be o,ered.
Fin!l Pro*ect
The majority of your course grade will consist of an ac'uisition proposal
from a buyerCs perspective. =ou may select either a strategic or fnancial buyer
as the ac'uiring entity in your analysis. The project will be completed in
grou"s of /011) +2ic2 is t2e #!-i#u# grou" si3e for t2is "ro*ect.
.efore you begin your analysis, submit an outline of the proposed
project via hard copy or e6mail. The outline should include an overview of the
target frm, detailed rationale on why the ac'uisition should ta(e place,
sources of information to be used in the report, and a summary on why youCve
chosen the target to be ac'uired by the specifc buyer. =our outline should
also include details on the techni'ues the group will use to analy*e the project
including a discussion on how you will estimate the value created in the
proposed transaction.
: do not provide guidance on the format or length of the fnal paper. Top
projects from last yearCs class will be available for reference. #s in most
business writing, the paper should ade'uately convey the (ey points but
should otherwise be no longer than necessary. =ou should cite appropriate
references to published material that is used in preparation of the report.
Selection of the 1ompanies :nvolved
: encourage you to select a ac'uiring company of interest to you and to
be creative in selecting a logical and defendable ac'uisition target. .e
diligent at this stage and ensure that the merits of your proposal are
defendable from both strategic and economic perspectives. # word of advice:
the disclosure provided by public companies ma(es it much easier to estimate
the value of a target and determine the fnancial impact on both frms from
the ac'uisition. 0hile this is not a re'uirement, many groups in the past have
wished they had considered data availability in their selection of target frms.
;rading of 4roject
The grade for the paper will be based on three criteria:
1. Quality of writing. =ou must clearly and succinctly explain why the
proposed deal ma(es sense and why the o,ering price and other terms
of the deal are appropriate. =ou must also clearly explain assumptions
and sources of information along with any caveats you may have about
your analysis. :n actual deals, the data and information that
professional advisors and investors have to wor( with are typically
limited, of poor 'uality, or biased. The ability to sort through these data,
to determine which are most critical for ma(ing the right decision, to
ma(e logical assumptions, and to articulate why a particular ac'uisition
ma(es sense are highly mar(etable s(ills. Dse bullet points where
appropriate and avoid long rambling text in your report.
$. Quality and depth of analysis. 2nce you have made a case for how
your proposal will increase the value of both companies involved, :
suggest you ma(e recommendations on an o,er price and other terms of
the deal. =ou should ma(e extensive e,orts to demonstrate that you
have 'uantitatively analy*ed the merits of the proposal. :f data is
unavailable, reasonable assumptions must be made which will allow
your team to set an o,er price. :n the case of a valuation analysis, for
example, you will be evaluated on whether you use a comprehensive
approach using several techni'ues based on clear and defendable
assumptions.
%. Overall selection of a target and concise reasons for why this
acquisition should occur. # (ey part of the grade will come from
convincing the reader of the merits of your proposed transaction.
4lease invest su,icient time and discussion to come up with a proposal
that has tangible merit and has a realistic probability of successful
execution. Eiew the project as something you would present to a board
or management team from the perspective of an outside consultant or
advisor.
#ttendance 4olicy: Students are expected to attend every class. :n cases
where the class must be missed, students should independently prepare the
cases studies and obtain the class notes. =ou will be responsible for all material
presented in the class sessions. ;rading is not directly based on attendance in
my class, but it will a,ect your performance on graded assignments, projects or
examinations.
8onor 1ode: The honor code of the university strictly applies to this
course. 1ase assignments are generally prepared in learning groups where free
collaboration is encouraged. 1ollaboration, however, should not occur between
groups. Blectronic transmission of case solutions between students outside
study groups is a violation of the honor code.
-eligious 2bservance: -eligiously observant students wishing to be
absent on holidays that re'uire missing class should notify their professors in
writing at the beginning of the semester, and should discuss with them, in
advance, acceptable ways of ma(ing up any wor( missed because of the
absence. +See Dniversity 4olicy Fo. 1.9.
5isabilities: Students who need academic accommodations for a disability
must frst be registered with 5isability #ccommodations " Success Strategies
+5#SS to verify the disability and establish eligibility for accommodations.
Students may call $1&6@G<61&@7 or visit http:??www.smu.edu?alec?dass.asp to
begin the process. 2nce registered, students should then schedule an
appointment with the professor to ma(e appropriate arrangements +See
Dniversity 4olicy Fo. $.&.H an attachment describes the 5#SS procedures and
relocated o,ice.
Bxcused #bsences for Dniversity Bxtracurricular #ctivities: Students
participating in an o,icially sanctioned, scheduled Dniversity extracurricular
activity should be given the opportunity to ma(e up class assignments or other
graded assignments missed as a result of their participation. :t is the
responsibility of the student to ma(e arrangements with the instructor prior to
any missed scheduled examination or other missed assignment for ma(ing up
the wor(. +Dniversity Dndergraduate 1atalogue
1onsistent with standards of professional conduct, : expect you to be on
time for class sessions and to avoid browsing the :nternet or chec(ing e6mail
during class.
Mergers & Acquisitions
1-ecuti4e MBA
&"ring $011
5l!s
s
/o"ics 5!ses & 5ourse M!teri!ls
&uggeste'
0e!'ing
1?@ !"# overview !ethods of Ealuation in !"#
+5arden /61$@&
#!#, 1h. 1, %
1?< Ealuing #c'uisition
Targets
!ercury #thletic /ootwear +8.S
&7)7
#!#, 1h. 9,
11, 1)
1/, 1h. 1<.16
1<.@
1/, 1h. 19
1?$1 #c'uisition
-ationale and
Target Selection
T. 6 1itect +8.S 96$7967$$
Fewell 1ompany: #c'uisition
Strategy +8.S 96@9&67GG
#!#, 1h. G, @,
%$
I:f 4rivate
B'uity Si*ed
up =our
.usinessJ,
8.-
$?& 5eal 5ynamics
Dsing 4roper
Techni'ues
#c'uisition of 1onsolidated -ail
+# +8.S 96$9<677G
.rin(er and FB -estaurant 1o.
+distributed during class
#!#, 1h. %1,
%$, 17, 1&
1/, 1h. $<, $$
$?1< Transaction
#nalysis
/inancial
#c'uisitions
S6& review: 0alt 5isney 1o. and
!arvel Bntertainment +lin( will be
on class website K group case
analysis due
.er(shire 4artners: .idding for
1arterCs +8.S 96$7)67)<
#!#, 1h. 1%,
%<
I0hen to 0al(
#way from a
5ealJ, 8.-
5l!ss &ession 61 7 Fri'!y) J!nu!ry 7
Assign#ent: -ead I!ethods of Ealuation for !ergers and #c'uisitionsJ, 5arden /6
1$@&, and the assigned reading noted above +note that on pg. G of this document,
unlevering and relevering betas should F2T include +1 K T in those formulas.
5l!ss &ession 6$ 7 &!tur'!y) J!nu!ry 8
Mercury At2letic Foot+e!r: 8!luing t2e O""ortunity 9B& 40:0;
&tu'y <uestions 9s"re!'s2eet !4!il!=le on cl!ss +e=site;:
1. :s !ercury an appropriate target for #;:L
$. -eview the projections formulated by Miedt(e for reasonableness. 8ow would you
recommend modifying the forecastL
%. Bstimate the value of !ercury using a discounted cash Now approach and
Miedt(eCs base case projections. 1onduct a sensitivity analysis on (ey assumptions
in the valuation model. 0hat is your recommendation on the e'uity value of
!ercuryL
&. 8ow would you analy*e possible synergies or other sources of value not reNected
in Miedt(eCs base case assumptionsL
5l!ss &ession 6> 7 Fri'!y) J!nu!ry $1
/2o#! Br!4o 7 5itect 5or"or!tion 9B& (%$0(%0$$;
&tu'y <uestions
1. 5o you thin( T. or Schneider would create more value as the owner of 1itectL
$. T. would assume what ris(s if they are the winning bidderL
%. Should T. continue to bid on 1itect and at what priceL #re the expected -2:s and
:--s to T. su,icient at your revised bid amountL +O note: a detailed evaluation
model will be constructed during the class session O
?e+ell 5o#"!ny: Acquisition &tr!tegy 9B& (%$(8%006;
&tu'y <uestions
1. :s Fewell just another conglomerateL 8ow is it organi*ed di,erentlyL
$. 0hat general sources of value +potentially common to other ac'uirers and specifc
sources of value does Fewell bring to an ac'uisitionL
%. 0hat businesses should Fewell be inL Should it ac'uire Sanford or MevelorL
5l!ss &ession 64 7 Fri'!y) Fe=ru!ry 4
Acquisition of 5onsoli'!te' 0!il 9A; 9B& (%$(8%006;
&tu'y <uestions
1. 0hy does 1SP want to buy 1onrailL 8ow much should 1SP be willing to pay per
shareL
$. #naly*e the structure of 1SPCs o,er for 1onrail
a. 0hy did 1SP ma(e a two6tiered o,erL 0hat e,ect does this structure
have on the transactionL
b. 0hat are the economic rationales for the various provisions of the
merger agreement +no6tal( clause, loc(6up options, brea(6up fee and
poison pill shareholder rights planL 0hat are the implications of these
provisions in regards to a ta(eoverL
3. #s a 1onrail shareholder, would you tender your shares to 1SP at Q9$.)7 in the
frst6stage o,erL
5l!ss &ession 6: 7 Fri'!y) Fe=ru!ry 18
@!lt Aisney 5o. B M!r4el 1ntert!in#ent Acquisition
0e4ie+ of &%4 0egistr!tion &t!te#ent
&tu'y <uestions:
1. Mist the important terms of the deal as outlined in the S6& including pricing,
structure, method of payment and other important provisions.
$. 1riti'ue the reasons for the transaction outlined by both 5isney and !arvel
relative to the ris( factors. 0hich side appears to have had the upper hand in
negotiationsL 4rior to loo(ing at the o,er price in more detail, do you thin( this
will be a good deal for 5isney in the long runL
%. 0hy did !EM management want stoc( vs. cashL
&. Dsing !EMCs historical fnancial statements +available on class website, estimate
!EMCs future cash Nows using reasonable assumptions. 1onduct a 51/ analysis at
discount rates of 1$ and 1) percent. #re you satisfed from the perspective of a
5:S shareholder that this deal will create economic valueL
BerCs2ire P!rtners: Bi''ing for 5!rterDs 9B& (%$0:%0:8;
&tu'y <uestions:
1. 0hat sources of competitive advantage can .er(shire 4artners bring to a
transaction involving 1arterCsL 0hy might a fnancial buyer fnd the company
attractive in this mar(etplaceL
$. To what extent does fnancial structure a,ect the viability of the dealL 0ould you
accept the staple6on fnancing provided by ;oldman SachsL
%. .er(shire must ma(e a fnal bid for 1arterCs including a proposed capital
structure. 4erform a detailed analysis of the value of 1arterCs and ma(e a
recommendation on the value of your fnal bid and re'uired e'uity commitment.