M&A Basics/Structuring Flashcards
Regulation FD: basic rule
If a company shares material non-public information with someone, it must also disclose that information publicly.
Regulation FD - what does FD stand for
Fair disclosure
“Open Lane” structure
Board agrees to consider any competing bid submitted over a very short window. Used in situations in which a controlling shareholder has agreed to vote in favor, to avoid a lockup as in Omnicare
Open Lane examples
Thoma Bravo / Deltek
Starbucks / Teavana (6 am the next day)
Genessee & Wyoming / RailAmerica
Bayer / Schiff Nutrition (2012, $1.2 bn) - Reckitt Benckiser topped bid and won
Open Lane typical window period
30 days
Buyers: % strategic / % financial
middle-market, $10m - $1bn+, U.S., HL
60 / 40
Financial buyers: % platform / % add-on
middle-market, $10m - $1bn+, U.S., HL
88% / 12%
Transaction structure: % stock / % asset
middle-market, $10m - $1bn+, U.S., HL
80 / 20
Consideration: % cash / % stock / % hybrid
middle-market, $10m - $1bn+, U.S., HL
79% / 1% / 20%
% of deals with earnouts
middle-market, $10m - $1bn+, U.S., HL
~15%
% of deals with rollovers
middle-market, $10m - $1bn+, U.S., HL
18%
% of deals with seller notes
middle-market, $10m - $1bn+, U.S., HL
4%
3 standards of review in Delaware
- Business Judgment standard
- Enhanced scrutiny (Revlon for sale, Unocal for defense)
- Entire fairness
Entire fairness standard: 2 basic conditions
- Burden of evidence and burden of proof shift to defendant (typically seller board and acquiror)
- Fair price and fair process
Median seller note as % of purchase price
middle-market, $10m - $1bn+, U.S., HL
~10%
Ways to acquire a company
- Merger
- Tender offer
- Stock purchase
- Asset purchase
Indicative timeline for cash tender offer
-25 days - prepare materials
0 - announce offer
10 business days - 14D-9 deadline for target
15 - expiration of initial HSR waiting period
20 business days - expiration of minimum offer period
21 business days - 50/90 long/short-form thresholds
Cash tender offer indicative timeline: day -25 detail
Prepare materials required to be filed with the SEC and mailed to shareholders
Cash tender offer indicative timeline: C-day detail
Announcement of intention to commence tender offer, usually by press release
File Schedule TO with SEC
Mail offering materials to shareholders
File for regulatory approvals
During offering period, shareholders may withdraw tendered shares at any time
Cash Tender Offer, +10 business days detail
Rule 14D-9 deadline for target to formulate and publicly announce its position with respect to offer
Cash tender offer indicative timeline, +15 days detail
Expiration of initial waiting period under HSR
If second request is made, waiting period expires 10 days after substantial compliance with second request
Cash tender offer, +20 business days detail
Expiration of minimum offer period, assuming no extension
Cash tender offer, +21 business days detail
If acquire at least 90% of shares in the tender offer, execute “short-form” merger to eliminate public stub
If acquire less than 90% but more than 50%, pursue “long-form” merger
Long-form merger indicative timeline
-20 days: Initiate potential transaction
-5 days: understanding in principle
0 (A-day)
Merger signing
Public announcement
Investor/analyst calls
+5 - HSR filing
+21 - S-4/proxy statement filed
S-4 if consid. includes stk
Assm timely PF statemnts
+30 biz - HSR waiting period expires
+51 - SEC comments received
Typclly responds 30 days
+65 - S-4 effective/proxy cleared
+66 - proxy/prosepctus mailed to shareholders
+96 shareholder meeting
In general, if S-4 filed, shareholder meeting must be held at least 20 business days after mailing
Merger section in Delaware GCC
251
Shareholder approval of merger?
Constituent parties to merger
Tender offer vs. exchange offer
Tender offer = cash consideration
Exchange offer = stock consideration
Minimum U.S. offer period for tender offer
20 business days
Stock purchase: tax free organization
+ funny motto
“B” reorganization
no boot in a “B”
Asset purchase tax-free structure
“C” reorganization
requires sale of “all or substantially all” assets
Which side typically prefers stock purchase, and why
Seller
“Outside” basis typically higher than “inside” bases, so taxable gain lower
Stock purchase easier to execute - all assets/liabilities transferred to Buyer
Which side typically prefers asset purchase and why
Buyer
Takes assets of Seller at a stepped-up basis and can amortize step-up generally over 15 years (tax-deductible goodwill amortization)
Three forms of merger in the U.S.
Direct
Forward Triangular
Reverse Triangular
Theories of the motivations for mergers
- Economic efficiency (synergies)
- Power base of management
- Transfer wealth from one class of stakeholders to another (typically leverage to transfer wealth to equity)
Theories of the motivations for divestitures
- Focus on core competencies
- Equity story
- Capital markets access
TRA 86
The Tax Reform Act of 1986 eliminated many of the potential tax benefits available in a merger, particularly in acquisitions of freestanding C corporations.
- Eliminated most situations in which value of step-ups exceeded costs of obtaining them
- Eliminated most situations in which value of acquired NOLs exceed costs of obtaining them
