Life Cycle II

Question 1

When do you see more hostile take overs

Answer 1

When debt markets are cheaper and more accessible

Question 2

Cash or Stock

Answer 2

Cash is king…when shareholders receive all cash consideration the are “cashing out” and no longer have an economic interest in the company. Cash considerations are taxable events to the selling shareholders. Stock considerations allow selling shareholders to remain as part owners of the combined company and retain potential upside. Stock received is also generally tax-free (tax-deferred) to the sellers

Question 3

Buyer perspective regarding balance

Answer 3

Balance the impact of additional debt (cash consideration) with the dilutive impact of issuing new shares (stock consideration).

Question 4

Transaction consummation - Merger

Answer 4

A legal/statutory combination of two companies…wherein one of the two companies ceases to exist. Seller’s shareholders vote to merge the seller company with the buyer company, as opposed to selling their shares directly to the buyer. Board & Mgmt approval.

Question 5

Transaction consummation - Tender Offer

Answer 5

Tender offer - a buyout process where the buyer appeals directly to the target’s shareholders with an offer to exchange their shares for cash by a certain date. If the shareholders tender a certain majority percentage by that date, the buyer can complete the acquisition by purchasing the remaining non-tendered shares. In an exchange offer, stock is used instead of shares.

Question 6

Days for a tender and shareholder vote

Answer 6

Tender = 40; shareholder vote = 90 - 120

Question 7

Types of Letters (Grizzly or Teddy Bear Hug)

Answer 7

A letter from a buyer to a target announcing interest in pursuing an action…hostile takeover…Grizzly bear hug letter when letter is given also to the public markets - media to generate “buzz” and pressure the board. Teddy bear hug letter is when it is given only to the Management without a public announcement.

Question 8

Hostile - Tender or Proxy Contest

Answer 8

Tender - a buyout process aimed at the target shareholders with an offer the shareholders can tender into by a certain date. Proxy contest is where the buyer appeals to the shareholders for a vote in support of its own directors. If it can succeed in installing a new board, it can appoint a friendly Mgmt team that will be open to negotiate an acquisition with the buyer.

Question 9

Announcing the Deal

Answer 9

Deal announcement: 1) Formal press conference; 2) Investor presentation; 3) Strategic rationale; 4) expected synergies; 5) important deal terms

Question 10

Difference in due diligence from a friendly and hostile transaction (buyer perspective)

Answer 10

In a hostile transaction, you will have access to only public information