Section 17 Flashcards
AOL/Time Warner Deal outline
2000; $165Bn; $450Bn market cap; hailed as new paradigm; $200Bn in market cap eventually evaporates; in 03 company drops AOL name from name; 2009 Time Warner spins off
describe time warner organization:
loose confederation of divisions; all competed against each other
how was AOL organized?
centralized operation
What was AOL strategy/
circulation and marketing ruled; much more focused on maximizing profit and share price than was TW; organized business to facilitate stock price; beat wall street expectations constantly; stock went from 2 a share in 97 to 95 just before merger
what was time warners strategy?
divergent approach; content was king and editors had more power than publishers; investors wanted sustainable cash flow, company placed institution above investor; TW weren’t enthused about AOL’s aggressive culture;
What were some additional factors contributing to negative outcome of deal?
Lawyers only had 3 days to complete due-dilligence which could have saved from $99Bn writedown in goodwill; in Dec 04 TW paid $510M to setlle accounting charges from AOL; AOL execs were appointed over TW and brought aggressive culture, doomed firm
Describe the .com bubble
from 98-200, internet sector earned over 1,000 percent returns on public equity and accounted for 20% of all publicaly traded equity volume; within months of merger companies began to feel easing; AOL experienced slowdown in online advertising
who are strategic buyers?
companies with existing operational business plan to expand market shares or enter new markets
who are financial buyers?
private equity and hedge funds with temporary ownership before reselling or taking a company public
what is buyer and seller management?
principal decision makers and business experts
what are investment banks?
assist sellers to find buyers and with valuations; assist buyers with valuation and negotiation strategies
what do lawyers do in transactions?
perform legal due diligence
what do accounts do in transactions?
perform accounting and tax due diligence; consult on tax structure of transaction
Describe a stock purchase
buyer inherents all liabilities and tax attributes; includes known and unkown tax and liabilities contingencies items; due diligence and contractual protections becomes important
Describe an asset purchase
buyer can acquire specific assets without contingent liabilities; third party agreement may be required if third party services, contract, lease is involved
describe a merger:
both buyer and target perform detailed due-dilligence
describe due diligence:
investingation of financial, accounting, tax, cash flow and operational matters; requested by buyer to understand where value in target exists
describe the structure of a strategic buyer’s acquisition:
goal: efficient integration of business operations; structure: form legal and tax entity (llc, partnership)
what are some issues with a strategic buyers structure?
obtaining desired tax reatment of transactions; optimizing use of tax attributes (net operating losses/carry-overs)
describe structure of financial buyer’s transaction:
goal: structure transaction for efficient exit (IPO, future sale); structure: same as strategic
what are some issues with financial buyers?
subsequent diligence upon exit (easy for subsequent buyer)
what are forms of payments for mergers and acquisitions?
cash; non cash (common equity, preferred, convertible preferred, debt [secured & unsecured]); earn-outs or contingent payments; rights, royalties, and fees
what are syndicated loans?
more than one lender; one common agreement; senior to bonds
what are the two types of syndication?
underwritten and best effort deals
describe underwritten syndication
firm commitment; lead arranger agrees to place entire amount of the loan; may keep on its own balance sheet if not enough demand
describe a best effort deal
if deal is not fully placed, volume and pricing of loan may be adjusted
what is a accredited individual investor?
net worth or joint net worth in excess of 1M
what is accreted investor as corporation, partnership, or LLC?
total assets in excess of 5M and was not formed for specific purpose of acquiring interests offered
what is a trust that’s an accredited investor?
total assets in excess of 5M, not formed for specific purpose of acquiring interests offered, and its purchase is directed by sophisticated person
