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Series 79 > Section 3: 8,15,17 Mergers and Acquisitions, Tender Offers and Financial Restructuring Charges > Flashcards

Section 3: 8,15,17 Mergers and Acquisitions, Tender Offers and Financial Restructuring Charges Flashcards

1
Q

What are the two most relevant marketing documents for the first round of an M&A transaction?

A

The teaser and the CIM

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2
Q

What regulation govern the teaser contents?

A

Regulation FD

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3
Q

Is it common for IB to leave the name of the target company out of the teaser document?

A

yes because no confidenciality agreements have been signed

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4
Q

What is the difference between the CIM and the teaser?

A

CIM is detailed but Teaser is a brief

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5
Q

What is a confidentiality agreement?

A

it is a binding contract between two parties to exchange information

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6
Q

prevents prospective buyers from making job offer to target employees for a specific time

A

non solicitation clause

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7
Q

What does a standstill clause imply?

A

the prospective buyers cannot make unsolicited offers or purchases to target’s shareholders or boD

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8
Q

What is an initial bid procedure letter?

A

document that states the date and time by which interested buyers must submit their bids in order to be considered for first round

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9
Q

What document does management presentation bases itself on ?

A

The confidential Information Memorandum

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10
Q

When is a data room normally set up?

A

after first round is pursued and the most interested buyers have been selected.

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11
Q

Who initiates the stapled financing package

A

the Sell side

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12
Q

Why is a stapled financing package established?

A

because it helps provide a valuation floor to the target, helps determine leverage capacity, helps build bond between buyer and seller and eliminates double due diligence

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13
Q

At what point of an M&A deal is the management presentation used?

A

In the second round

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14
Q

Who is in charge of submitting a draft of the definitive agreement?

A

the sell side

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15
Q

Who is normally in charge of conducting a Fairness opinion?

A

the target’s Fairness Opinion Committee. It used to be done by the IB but in recent years the practice came under scrutiny because possible bias to execute the deal regardless of target’s best interests

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16
Q

Which is the regulation requirement that M&A transactions must fulfil?

A

All M&A transactions must comply with the hart sctt rodino antitrust improvements act of 1976. This act requires the parties to submit documentation and notification to the FTC and the antitrust division of the DoJ.

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17
Q

When are M&A documents submitted for regulatory approval?

A

Immediately after the definitive agreement is signed

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18
Q

How long does it take for the transaction to be consumed if there are no antitrust issues?

A

up to 30 days and up tp 15 days if it is a tender offer

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19
Q

What companies must submit documentation for approval according to FTC standards?

A

Those companies that have securities worth at least 303.4 million or if the fulfil ALL three of these characteristics:

  • Transaction value is at lease 75.9 million
  • One party had sales of at least 15.2 million the past year
  • One party had at least 151.2 million of sales
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20
Q

Why is bring down due diligence necessary?

A

BDDD is necessary because it is a way to confirm that no substantial changes in the seller’s status have changed that could affect the deal. If this is true then the deal may be terminated

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21
Q

When is bring down due diligence executed?

A

afte receiving regulatory approval

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22
Q

What is a one step merger

A

scenario where target’s shareholders must vote on whether to approve or reject the proposal. both buy and sell side advisors work on trying to convince shareholders of the deal.

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23
Q

How long does an M&A transaction take under a one step merger scenario?

A

can take from 6 weeks to 3or 4 months

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24
Q

What complications can one encounter under the ine step merger scenario

A

If the SEC requires public disclosure of the transaction, it may take more time to complete the deal

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25
Q

What is a two step tender process?

A

the buy side makes a tender offer (cash for stock ownership) to target’s shareholders. If it obtains majority or supermajority only (50.1% normally) buyer must try to convince the rest of the board in a shareholder meeting. If it does achieve more than 90% in the ideal scenario, then can squeeze the rest of the shareholders without approval

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26
Q

what complications can a two step tender process encounter?

A

if buyer must access capital markets to complete transaction it may take more time

27
Q

Who normally initiates a negociated sale?

A

the buyer or the banker

28
Q

What are the benefits of a negotiated sale

A

compressed timeframe
maximum level of confidentiality
Flexibility
Normally used when there is a perfect fit

29
Q

What are the disadvantages of a negotiated sale?

A

loss of leverage over buyers

may leave money in the table

30
Q

What is the usual order of documents in an M&A transaction?

A 
Engagement letter
Teaser
Confidentiality agreement 
Confidential information memo 
initial procedures letter
Firs round bid ( indication of interest, statement of interest etc) 
Second round 
due diligence with data room and mgmt. ppt 
Final bid procedures and Definite agreement 
Fairness opinions
Regulatory approval 
bring down due diligence 
Close
31
Q

WHat are two very heavily negociated terms ina a Confidentiality agreement

A

Length of term 9 referring as to how long the agreement is in place) and non solicitation clauses

32
Q

how long does a buyer normally have to create an initial bid?

A

one month

33
Q

public buyers don’t care about accretion/ dilution until second round bids. true or false

A

false

34
Q

What type of file is required after purchasing more than 5% of the shares of the company?

A

schedule 13 D

35
Q

What are offers for less than 5% of shares called?

A

mini tenders and they are subject to minimal level or registration and filing

36
Q

What is schedule 14d for?

A

specify which parties other than acquirer are involved in the merger

37
Q

What type of tender offer does rule 13e4 clarify?

A

issuer tender offer. An offer made by the own issuer of shares ( similar to repurchase)

38
Q

What does TO stand for?

A

tender offer

39
Q

How long must a tender offer remain open?

A

20 days from the commencement and 10 days extra if there are any size modifications of the offer

40
Q

What is the key part of a dutch auction

A

while the issuer may give a range of price instead of a fixed price and wait and see what is the lowest bid that will purchase all the required shares. focus is on number of shares not on price.

41
Q

What is the name of a deal where the majority tries to buy out a minority in a firm?

A

minority freeze out

42
Q

Is a company required to purchase the last 10% of a company under Delaware corporate law to hold control after acquiring 90% in a tender offer?

A

no. Minority must sell out.

43
Q

Where is pre commencement information disclosed?

A

in the schedule 14d9

44
Q

what is rule 14d 10 for regarding treatment for sellers in a tender offer?

A

must eb equal treatment

45
Q

what is the term used for when a bidder does not pay the promised amount?

A

reneges

46
Q

what does rule 14e3 prohibit officers and directors from doing in a tender offer?

A

trading securities if they have material non public information

47
Q

What does rule 14e4 say about tendering shares?

A

a shareholder may not tender shares unless the have a long position equal to or greater than the amount they want to sell

48
Q

What is a covered person under a tender offer?

A

purchaser and affiliates and broker dealer of purchaser and affiliates. They cannot buy shares outside of tender offer

49
Q

What are the safe harbors that cover share repurchases under rule 10b18?

A

per trading day:

  • issuer may not use more than one borker per day
  • must be done at a time other than the first or last half hour of trading
  • price must be not greater than highest independent published bid or last independent transaction price
  • an issuer may repurchase up to 25% of average daily trading volume of four weeks
50
Q

What is an accelerated share repurchase program?

A

agreement between issuer and bank to repurchase shares from bank during a specified time frame. the bank ay go short on selling the shares and then cover its position by purchasing share sin the open market

51
Q

Is the issuer allowed to purchase shares outside of the paramenters imposed by rule 10b18?

A

yes but it will not be eligible for safe harbor

52
Q

What are the two chapters that companies may use to file for bankruptcy?

A

7 and 11

53
Q

What happens under chapter 7?

A

company is liquidated, assets are sold to appease creditors and common shareholders are wiped out

54
Q

Who is more likely to use chapter 7?

A

not many, you may not be able to discharge debt as a corporate or as a partnership.

55
Q

What happens under chapter 11?

A

the company can continue to operate while they have a major restructuring of financial obligations. Creditors have significant protection. They may form a committee that is the voice of unsecured investors to review and approve or make changes to the proposed restructuring plan

56
Q

when a creditor is paid less than full value it is said to be

A

impaired

57
Q

What must equity holders to try to avoid being wiped out completely under chapter 11?

A

file a proof of interest

58
Q

What is a debtor in possession?

A

right to debtor provided by chapter 11 that states that they may hold on to the asset and not sell it to pay debts. They are obligated to pay all debts incurred after filing through DIP financing which will help the company with their working capital requirements etc

59
Q

when should a debtor meet with the US trustee to discuss details of filing?

A

7 days after filing in a debtor conference.

60
Q

what is the name of the meeting to which the debtor is required to attend along with its creditors?

A

section 341 meeting

61
Q

What is created in the section 341 meeting?

A

the unsecured creditor committee made out of the 7 largest commitees.

62
Q

What is section 363 about regarding different ways to solve a liquidation?

A

liquidating a company through an acquisition. the acquirer would not incurre debt obligations and would obtain the assets of the company. the amount paid would be used to pay creditors.

63
Q

What is a stalking horse provision

A

ways to protect deal from falling under section 363. this may include a break up fee if other creditors don’t approve
accelerated deadlines for a bid, reimbursement of due diligence expenses etc

64
Q

What is the priority structure of claims in a company?

A
  • secured
  • priority ( this refers to administrative expenses, employee salaries up to 11,750, employee benefit plan claims, taxes
  • unsecured ( may be senior or junior)
  • Mezzanine
  • preferred stock
  • common stock

Series 79 (4 decks)

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