3 - Mergers & Acquisitions, Tender Offers, and Bankruptcy Flashcards
This deck focuses on the m&a process, as well as tender offers, and bankruptcy.
Waiting period under Hart-Scott-Rodino for stock deals
30 days
Waiting period under Hart-Scott-Rodino for all cash deals
15 days
Document filed when purchaser launches a tender offer
Purchaser files a Schedule TO to launch a tender offer
Minimum length of tender offer
Tender offer must remain open for at least 20 business days.
Document used by TargetCo management to respond to a tender offer
TargetCo management responds to a tender offer on a Schedule 14D-9
Deadline for TargetCo management to respond to a tender offer
TargetCo management must respond to a tender offer within 10 business days of a Schedule TO filing
Change to terms of tender offer
Any change to the terms of a tender must remain outstanding for at least 10 business days
Rule permitting share buybacks
Share buybacks are permitted under Rule 10b-18
Safe Harbor for small issuers under Rule 10b-18
Safe harbor for share repurchases does not include the first trade of the day or the last 30 minutes of trading
Safe Harbor for actively traded securities under Rule 10b-18
Safe harbor for share repurchases for actively traded securities does not include the first trade of the day or the last 10 minutes of trading
Volume limitation for share purchases
Daily volume limitation for share repurchases is 25% of the stock’s daily trading volume
Acceptable purchase price for share repurchases
Issuer can bid on their own securities at the greater of highest current bid or last sale price.
Restricted Period for M&A Deals
Under Reg M, the restricted period begins the day proxy materials are sent to shareholders
Type of buyer who will generally pay higher for a Target Company
Strategic buyers will generally pay more than financial sponsors due to synergies
Two key features of attractive LBO candidates
Buyers look for strong cash flow and operational improvements in attractive LBO candidates
Attractive feature to acquirer in an asset sale
In an asset sale, the buyer generally benefits from a stepped up cost basis
What is a fixed ratio transaction?
In a fixed ratio stock-for-stock transaction, the number of AcquirerCo shares received for each TargetCo share is fixed. Therefore, the transaction value changes.
What is a floating ratio transaction?
In a floating ratio stock-for-stock transaction, the value of the transaction is fixed, so the number of shares exchanged will fluctuate.
Benefits of broad auction
Broad auction offers best possibility of achieving maximum value by marketing to the largest number of potential buyers
Benefits of a targeted auction
Targeted auction maintains confidentiality, resulting in less business disruption
Describe a teaser
1-2 page company overview articulating the investment merits of the target; usually the first marketing document presented to prospective buyers
Engagement Letter
Document signed by a firm and an adviser to pursue an underwriting or strategic alternative (i.e. acquisition)
What is a non-solicitation clause?
Non-solicitation is a clause in a Confidentiality Agreement which prohibits the Acquirer from hiring away the Target’s key personnel.
What is a standstill agreement?
A standstill agreement is a provision in a Confidentiality Agreement which prohibits the Acquirer from making a hostile bid for the Target for a number of years after the initial engagement.
What is a club deal?
A club deal (clubbing) is a joint bid by multiple acquirers. A target might seek to prohibit club deals in a Confidentiality Agreement.
Describe a Confidential Information Memorandum (CIM)
A CIM is the main marketing document used by the Target including information about the sector, company, competition and financials.
Pro Forma Net Income for Accretion / (Dilution)
Pro Forma Net Income = AcquirerCo Net Income + TargetCo Net Income + After-Tax Synergies - After-Tax Interest Expense
Pro Forma Outstanding Shares for Accretion / (Dilution)
Pro Forma Shares = AcquirerCo Diluted Shares + New Shares Issued
New Shares Issued in an acquisition
New Shares = (Purchase Price x % stock consideration) / AcquirerCo Stock Price
Calculation of Exchange Ratio
Exchange Ratio = (Purchase Price per Share - Cash per Share) / AcquirerCo Stock Price
No-Shop Provision
Prohibits the seller from seeking a better deal after signing a Definitive Agreement
Go-Shop Provision
Permits the seller to seek a better deal after signing a Definitive Agreement
Bring-down due diligence
Diligence meeting prior to closing where all parties are brought up to speed on any recent developments
Purpose of a Fairness Opinion
A Fairness Opinion confirms the financial fairness of a transaction, not the legal fairness
One-step merger
Issuer files a proxy statement and shareholders vote on the transaction
Two-step merger
AcquirerCo makes a tender offer for the target company’s stock in the open market
Common squeeze out threshold
If the AcquirerCo gets 90% of the target company’s shares, the remaining shareholders can be forced to sell
AcquirerCo shareholder approval to close a deal
AcquirerCo shareholders vote on a deal when the transaction would be dilutive by 20% or more
Clearing Price in a Dutch Auction
The clearing price is the lowest price at which the tender can be filled; everyone receives the clearing price
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is an orderly liquidation
Chapter 11 Bankruptcy
Chapter 11 Bankruptcy is a restructuring; company can continue operating
What is an automatic stay?
In a bankruptcy, an automatic stay requires creditors to cease their collection efforts outside of bankruptcy court
Deadline for a creditor to file a claim under Chapter 7
In a Chapter 7, a proof of claim must be filed in a timely fashion
Deadline for a creditor to file a claim under Chapter 11
In a Chapter 11, a proof of claim must be filed in a timely fashion only if the creditor disagrees with the amount on the debtors schedule
Vote required for approval of reorganization plan
For a reorganization plan to be approved, it must be approved by creditors representing at least 2/3 of the dollar amount of the claims and at least 1/2 of the number of claims
Debt service requirement for DIP financing
DIP financing must be serviced by a company in bankruptcy
Section 363 Sale
Asset Sale by a company in bankruptcy
Stalking Horse
A stalking horse is the initial bidder in a Section 363 sale who signs an Asset Purchase Agreement (APA) with the debtor
Who has higher priority, trustee expenses or recent employee wages?
Trustee and attorney’s fees have higher priority than recent employee wages
Who has higher priority, preferred stock or warrants?
Preferred stock has higher priority than warrants
Who has higher priority, common stock or warrants?
Common stock and warrants have equal priority
Impaired creditors
Impaired creditors are creditors who do not receive all of their money back. The largest impaired creditors make up the creditors’ committee.
Order of documents in first round of M&A auction
Engagement Letter, Teaser, CA, CIM, Initial Procedures Letter, First Round Bids (IOIs)
Regulatory requirements for a press release announcing a merger
Press release announcing a merger is a prospectus and is filed with the SEC on the day of first use
Cross Default Clause
Provision in a Trust Indenture triggering a default if the issuer defaults on any other tranche of debt
Negative Covenants
Negative Covenants prohibit the issuer from performing certain actions
Document detailing fees received by an advisor in M&A deal
Engagement Letter details the fees received by an advisor
Forward Triangular Merger
In a forward triangular merger (where the target becomes part of a subsidiary of the purchaser), as long as at least 50% of the consideration is stock, only the cash consideration is taxable to the TargetCo shareholders
Reverse Triangular Merger
In a reverse triangular merger (where the subsidiary of the purchaser becomes part of the target), as long as at least 80% of the consideration is stock, only the cash consideration is taxable to TargetCo shareholders
What happens to a company’s Board of Directors after filing for bankruptcy?
Upon filing for bankruptcy, the debtor’s Board of Directors will remain in place
AcquirerCo shareholder approval for an all cash deal
AcquirerCo shareholder approval is not required for an all-cash transaction
IRC 338(h)(10) acquisition
Asset sale where the target company stills owns the assets, but the assets are adjusted to reflect the purchase price
Priority of convertible debt vs. unsecured creditors
Unsecured creditors have a higher priority than convertible debt in a bankruptcy
Under 10b-18, the highest price an issuer can bid is the
higher of the last sale or the highest independent bid
Tender offers must be outstanding for at least
20 business days
In a fairness opinion, the member must disclose the amount of compensation it will earn. True or false?
FALSE
