Chapter 1: intro

Question 1

who tends to dictate M&A patterns?

Answer 1

US and European markets

Question 2

who tends dot differ in M&A patterns?

Why?

Answer 2

China

the Chinese government took measures to restrain capital flows

Question 3

A consolidation

Answer 3

a business combination whereby two or more firms join to form a wholly new firm

(e.g., A + B = C)

Question 4

A merger

Answer 4

one or more firms join an existing firm

(e.g., A + B = A

Question 5

who has a adopted a liberal stance with respect to anticompetitive effect of mergers?

Answer 5

U.S.

Question 6

who has been more cautious with respect to anticompetitive effect of mergers?

Answer 6

Europeans

Question 7

how can mergers be paid?

Answer 7

cash

securities

combination of both

Question 8

how can incurring debt when paying with cash for a merger complicate the company’s business?

Answer 8

it can make lenders not wanna loan you money

Question 9

Contingent value rights (CVR)

Answer 9

secure a certain future value if specific events takes place

(e.g., a sales target is met)

Question 10

A holdback provision

Answer 10

the withholding of part of the merger compensation (e.g., escrow account),

will be accessible if a specific event takes place

Question 11

Investment bankers

Answer 11

can work either on the sell side or buy side

Question 12

buy side investment bakers

Answer 12

assist buyers in developing a proposal with a certain deal structure

Question 13

sell side investment bankers

Answer 13

can screen potential buyers according to the degree of interest and payment capability

Question 14

when are Legal M&A advisors especially relevant?

why?

Answer 14

in hostile takeovers

take place via legal manoeuvers

In addition, they help with the filing at the SEC and the legal due diligence process

Question 15

Accountants

Answer 15

carry out the accounting due diligence process

prepare pro forma financial statements set forth by management or other actors

Question 16

Valuation experts

Answer 16

determine the value of a company

they establish a model that encompasses multiple assumptions (e.g., revenue growth rates, costs), which could be suppressed after the deal

Question 17

Risk arbitrage in M&A

Answer 17

the purchase of stocks in low-priced markets of firms that may be taken over

the sale of those stocks in high-priced markets (the profit is the takeover premium if the deal actually occurs)

Question 18

Leveraged buyout (LBO)

Answer 18

the acquisition of a public company where the target firm is delisted from the stock exchange

–> going private

a buyer uses debt to finance the acquisition of a company

utilize a significant amount of debt along with an equity investment

could be a management buyout

Question 19

management buyout

Answer 19

the acquirer of a public company where the target firm is delisted from the stock exchange could be the management of the target firm

One version of an LBO

Question 20

A material adverse change clause

Answer 20

enables either party to walk away from the deal if a major change in circumstances that alter the deal takes place

Question 21

true or false

There is little difference in shareholder wealth effects when comparing auctions vs. privately negotiated transactions

Answer 21

true

Question 22

A confidentiality agreement

Answer 22

governs the responsibilities of providers and recipients of nonpublic information from the target

cover information about operations of the target and about the deal itself

often include standstill agreements

Question 23

Standstill agreements

Answer 23

limit the actions of the bidder (e.g., purchases of target shares)

ex:

Question 24

A term sheet

Answer 24

contains the major terms of the deal in writing

typically identify the buyer and seller, purchase price, and relevant factors influencing that price

contain the consideration the buyer will use (cash or stock) and who pays what expense

should also icnlude the major representations and warranties the parties are making

Question 25

A letter of intent (LOI)

Answer 25

shows more detailed terms of the agreement

it may not necessarily be binding on the parties (i.e., it could signal that one of the parties may not be ready to make the deal)

Question 26

The asset purchase agreement

Answer 26

outlines the assets acquired and the liabilities incurred in the deal

Question 27

An asset basis step-up

Answer 27

done by the buyer

an increase of the value of acquired assets to fair market value as opposed to carrying forward the value in the seller’s balance sheet

–> more depreciation = less taxes

–> buying it more expensive to have more depreciation expenses

Question 28

a forward merger (or statutory merger)

Answer 28

the target merges directly into the acquirer

the target disappears

Question 29

are there conveyance issues in forward mergers?

Answer 29

nah

Question 30

how does the Delaware law treat forward mergers?

Answer 30

as asset deals followed by the liquidation of the target

–> may pose as a deterrent if third party consents exist

Voting approval of the shareholders of both the acquirer and target is required as per Delaware laws (option: subsidiary deal)

Question 31

stock entity deals

Answer 31

generally involves closely held firms

exists no conveyance issues (i.e., contractual restrictions on transfer of assets)

do not exist appraisal rights, which sidesteps litigation issues related to fair value

buyer could have to assume certain unwanted liabilities

sent directly to target’s shareholders

–> the deal may not be completed if some of those shareholders oppose it

Question 32

Merger Entity Deals

Answer 32

generally involves publicly held firms

In Delaware, the majority of the shareholders must approve the deal. Those who are dissatisfied may opt for defending their appraisal rights in court

Question 33

Constituent corporations

Answer 33

the two companies doing the merger entity deal, and the surviving one is the survivor

Question 34

the pricing period of a merger paid with shares?

Answer 34

a prespecified period in which the ,erger is happening with the exchange of equities and when we have a floating ratio

usually some months after the deal is announced and before closing the transaction

Question 35

a collar

Answer 35

deal in a merger which provides for a maximum and minimum number of shares within the floating value agreement

Question 36

for which size targets are LBOs usually for?

Answer 36

Most LBOs are buyouts of small and medium-sized companies or divisions of large companies

Question 37

corporate restructuring

Answer 37

usually refers to asset sell-offs

he desire to sell parts of a company may come from poor performance of a division, financial exigency, or a change in the strategic orientation of the company

Question 38

joint defence agreement (JDA)

Answer 38

in the potential merger of horizontal competitors

governs how confidentiality information will be handled

Question 39

initial agreement

Answer 39

when the parties have reached the stage where there are clear terms upon which the buyer is prepared to make an offer that it thinks the seller may accept

buyer prepares term sheet

Question 40

who usually controls the term sheet

Answer 40

the buyer

the seller can also input some info

Question 41

how may a letter of intent reflect that one of the parties might vag on the deal?

Answer 41

it may indicate so because it is not as set in stone as getting in the deal in the first place