Section 17

Question 1

AOL/Time Warner Deal outline

Answer 1

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

Question 2

describe time warner organization:

Answer 2

loose confederation of divisions; all competed against each other

Question 3

how was AOL organized?

Answer 3

centralized operation

Question 4

What was AOL strategy/

Answer 4

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

Question 5

what was time warners strategy?

Answer 5

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;

Question 6

What were some additional factors contributing to negative outcome of deal?

Answer 6

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

Question 7

Describe the .com bubble

Answer 7

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

Question 8

who are strategic buyers?

Answer 8

companies with existing operational business plan to expand market shares or enter new markets

Question 9

who are financial buyers?

Answer 9

private equity and hedge funds with temporary ownership before reselling or taking a company public

Question 10

what is buyer and seller management?

Answer 10

principal decision makers and business experts

Question 11

what are investment banks?

Answer 11

assist sellers to find buyers and with valuations; assist buyers with valuation and negotiation strategies

Question 12

what do lawyers do in transactions?

Answer 12

perform legal due diligence

Question 13

what do accounts do in transactions?

Answer 13

perform accounting and tax due diligence; consult on tax structure of transaction

Question 14

Describe a stock purchase

Answer 14

buyer inherents all liabilities and tax attributes; includes known and unkown tax and liabilities contingencies items; due diligence and contractual protections becomes important

Question 15

Describe an asset purchase

Answer 15

buyer can acquire specific assets without contingent liabilities; third party agreement may be required if third party services, contract, lease is involved

Question 16

describe a merger:

Answer 16

both buyer and target perform detailed due-dilligence

Question 17

describe due diligence:

Answer 17

investingation of financial, accounting, tax, cash flow and operational matters; requested by buyer to understand where value in target exists

Question 18

describe the structure of a strategic buyer’s acquisition:

Answer 18

goal: efficient integration of business operations; structure: form legal and tax entity (llc, partnership)

Question 19

what are some issues with a strategic buyers structure?

Answer 19

obtaining desired tax reatment of transactions; optimizing use of tax attributes (net operating losses/carry-overs)

Question 20

describe structure of financial buyer’s transaction:

Answer 20

goal: structure transaction for efficient exit (IPO, future sale); structure: same as strategic

Question 21

what are some issues with financial buyers?

Answer 21

subsequent diligence upon exit (easy for subsequent buyer)

Question 22

what are forms of payments for mergers and acquisitions?

Answer 22

cash; non cash (common equity, preferred, convertible preferred, debt [secured & unsecured]); earn-outs or contingent payments; rights, royalties, and fees

Question 23

what are syndicated loans?

Answer 23

more than one lender; one common agreement; senior to bonds

Question 24

what are the two types of syndication?

Answer 24

underwritten and best effort deals

Question 25

describe underwritten syndication

Answer 25

firm commitment; lead arranger agrees to place entire amount of the loan; may keep on its own balance sheet if not enough demand

Question 26

describe a best effort deal

Answer 26

if deal is not fully placed, volume and pricing of loan may be adjusted

Question 27

what is a accredited individual investor?

Answer 27

net worth or joint net worth in excess of 1M

Question 28

what is accreted investor as corporation, partnership, or LLC?

Answer 28

total assets in excess of 5M and was not formed for specific purpose of acquiring interests offered

Question 29

what is a trust that’s an accredited investor?

Answer 29

total assets in excess of 5M, not formed for specific purpose of acquiring interests offered, and its purchase is directed by sophisticated person