Topic 2 - Due Diligence

Question 1

What is the purpose of due diligence?

Answer 1

To identify risks to allow the purchaser to make informed decisions

Question 2

What are 5 different forms of due diligence?

Answer 2

► Financial & Tax
► Legal
► HR/People
► Engineering
► Environmental

Question 3

Whats the difference between mergers and acquisitions/takeovers?

Answer 3

• Mergers = two companies combine to form a new company

* Acquisitions or Takeovers = one entity gains ‘control’ over another entity

Question 4

What are 5 different values that can be gain from merger/acquisition?

Answer 4

– Protective value (market competition)
– Synergistic value (linking value chain/economies of scale)
– Growth value (access new markets)
– Underperformance value (eg. Remove poor management)
– diversification value

Question 5

What is a the Corp Act and who administers it?

Answer 5

ASIC
• Ensures procedural fairness during the takeover process
• Protecting shareholders and participants in the capital
market (especially those of the target companies)

Question 6

What is a the Competition and Consumer Act and who administers it?

Answer 6

ACCC
• Prohibits monopoly or anti-competitive mergers
• Protecting competition in the market & consumers

Question 7

As of what % does the Corp Act consider a shareholding controlling?

Answer 7

20% or more

Question 8

ASIC prevents shareholdings of above 20%, what are the 2 exceptions?

Answer 8

• A formal takeover bid (s.611-1)

* 3% “creep” in 6 months (s.611-9)

Question 9

What are 7 anti competitive considerations that the ACCC look at?

Answer 9

(a) Actual and potential level of competition
(b) Barriers to entry
(c) Level of market concentration
(d) Countervailing power in the market
(e) Likelihood acquirer could significantly and sustainably increase prices and profit margins
(f) Substitutes in the market
(h) likelihood of removal of a vigorous and effective competitor