Robert F. Bruner - Applied Mergers and Acquisitions

1 Value Merge.xls: When and How to Use the ModelWHEN TO USE THE MODEL GOOD PRACTICE: EXERCISING THE MODEL LAYOUT AND CONTENTS MODELING RULES NOTES CHAPTER 10: Valuing OptionsOVERVIEW OPTION BASICS OPTION PRICING THEORY OPTION APPLICATIONS A PRACTICAL GUIDE TO VALUING FINANCIAL OPTIONS CONCLUSION: FIVE GENERAL LESSONS FOR THE M&A DEAL DESIGNER NOTES CHAPTER 11: Valuing SynergiesTHE CONCEPT OF SYNERGY WHEN ONE THINKS LIKE AN INVESTOR SYNERGY ESTIMATES MUST BE A CENTRAL FOCUS OF M&A ANALYSIS A FRAMEWORK FOR SYNERGY ANALYSIS ESTIMATING SYNERGY VALUE, WITH EXAMPLES SYNERGIES IN THE DAIMLER/CHRYSLER MERGER RULES OF THUMB CONCLUSION: OBJECTIVITY ABOVE ALL ELSE NOTES CHAPTER 12: Valuing the Firm across BordersINTRODUCTION HOW BORDERS AFFECT M&A VALUATION STRATEGY FOR DCF APPROACH: HOME VERSUS FOREIGN VALUATION ADJUSTING CASH FLOWS ESTIMATING THE DISCOUNT RATE FOR FOREIGN CASH FLOWS RECAPITULATION: VALUATION PROCESS WITH ADJUSTED CAPM VALUATION CASES ACROSS BORDERS SUMMARY NOTES CHAPTER 13: Valuing the Highly Levered Firm, Assessing the Highly Levered TransactionINTRODUCTION THE WORLD OF HIGHLY LEVERED FIRMS EFFECT OF LEVERAGE ON VALUE OF THE FIRM “WHOLE DEAL” APPROACH TO EVALUATING THE HIGHLY LEVERED FIRM AND TRANSACTION A LEVERAGED RECAPITALIZATION: KOPPERS COMPANY A LEVERAGED BUYOUT: MEDIMEDIA INTERNATIONAL, LTD. A LEVERAGED BUYOUT: REVCO DRUG STORES SUMMARY NOTES CHAPTER 14: Real Options and Their Impact on M&AINTRODUCTION WHERE REAL OPTIONS APPEAR IN M&A IF OPTIONALITY IS SO PERVASIVE, WHY NOT VALUE EVERYTHING AS AN OPTION? HOW TO ASSESS THE IMPACT OF REAL OPTIONS FOUR MINI-CASES IN THE ANALYSIS OF REAL OPTIONS SUMMARY AND CONCLUSIONS NOTES CHAPTER 15: Valuing Liquidity and ControlINTRODUCTION ADJUSTING VALUES FOR DISCOUNTS AND PREMIUMS WHERE DO ILLIQUIDITY DISCOUNTS COME FROM? LIQUIDITY IS AN OPTION WHERE DO CONTROL PREMIUMS COME FROM? CONTROL IS AN OPTION INTERACTION OF LIQUIDITY AND CONTROL MINI-CASE: ATTEMPTED ACQUISITION OF VOLVO BY RENAULT, 1993 CONCLUSION NOTES CHAPTER 16: Financial Accounting for Mergers and AcquisitionsINTRODUCTION OVERVIEW OF PURCHASE ACCOUNTING HOW TO INTERPRET REPORTED FINANCIAL RESULTS IN AN M&A TRANSACTION LINKAGE AMONG ACCOUNTING CHOICES, FORM OF PAYMENT, FINANCING, AND PRICE DANGERS OF EARNINGS MANAGEMENT SUMMARY AND CONCLUSIONS APPENDIX 16.1 Mechanics of Pooling-of-Interests Accounting NOTES CHAPTER 17: Momentum Acquisition Strategies: An Illustration of Why Value Creation Is the Best Financial CriterionINTRODUCTION: FOUR CAUTIONARY TALES MOMENTUM ACQUISITION STRATEGIES ARGUMENTS FOR AND AGAINST MOMENTUM ACQUIRING VALUE CREATION IS THE BEST CRITERION FOR EVALUATING ACQUISITION STRATEGIES CONCLUSION: MOMENTUM STRATEGIES VERSUS VALUE STRATEGIES APPENDIX 17.1 An Analytic Model of EPS Dilution NOTES

11 PART Four: Design of Detailed Transaction Terms CHAPTER 18: An Introduction to Deal Design in M&A INTRODUCTION DEAL STRUCTURES ARE SOLUTIONS TO ECONOMIC PROBLEMS POSSIBLE DESIRABLES IN DESIGNING A DEAL THE DESIGN OF TERMS CAN HELP ACHIEVE OBJECTIVES EACH DEAL IS A SYSTEM: THE “WHOLE DEAL” PERSPECTIVE SOME IMPLICATIONS FOR THE DEAL DESIGNER SUMMARY AND CONCLUSIONS NOTES CHAPTER 19: Choosing the Form of Acquisitive ReorganizationINTRODUCTION: FIVE KEY CONCERNS FOR THE DEAL DESIGNER THE FORM OF REORGANIZATION HAS IMPORTANT IMPLICATIONS DEALS THAT ARE IMMEDIATELY TAXABLE TO THE SELLING SHAREHOLDERS DEALS THAT DEFER TAX TO THE SELLING SHAREHOLDERS SUMMARY AND IMPLICATIONS FOR THE DEAL DESIGNER AND SENIOR EXECUTIVE NOTES CHAPTER 20: Choosing the Form of Payment and FinancingINTRODUCTION PATTERNS AND TRENDS IN FORM OF PAYMENT DOES FORM OF PAYMENT MATTER? CONSIDERATIONS IN SELECTING THE FORM OF PAYMENT ASSESSING THE FINANCING ASPECTS OF A DEAL SUMMARY AND CONCLUSIONS NOTES CHAPTER 21: Framework for Structuring the Terms of Exchange: Finding the “Win-Win” DealINTRODUCTION A MODEL FOR CRITICALLY ASSESSING EXCHANGE RATIOS USES OF THESE MODELS AN ILLUSTRATION EXTENSION TO CASH-FOR-STOCK DEALS CHOOSING EXCHANGE RATIO TARGETS IN THE WIN-WIN ZONE SUMMARY AND IMPLICATIONS OF THE EXCHANGE RATIO FRAMEWORK APPENDIX 21.1 Derivation of the Exchange Rate Determination Model Based on the Price-Earnings Ratio Regarding Share-for-Share Exchanges (Larson-Gonedes Model)BUYER’S MAXIMUM ACCEPTABLE EXCHANGE RATIO (P/E MODEL) TARGET’S MINIMUM ACCEPTABLE EXCHANGE RATIO (P/E MODEL) APPENDIX 21.2 Derivation of the Exchange Rate Model Based on Discounted Cash Flow Regarding Share-for-Share ExchangesBUYER’S MAXIMUM ACCEPTABLE EXCHANGE RATIO (DCF MODEL) TARGET’S MINIMUM ACCEPTABLE EXCHANGE RATIO APPENDIX 21.3 Derivation of the Exchange Rate Determination Model Based on the Price/Earnings Ratio Regarding Cash-for-Share ExchangesBUYER’S MAXIMUM ACCEPTABLE EXCHANGE RATIO (P/E MODEL) TARGET’S MINIMUM ACCEPTABLE EXCHANGE RATIO (P/E MODEL) APPENDIX 21.4 Derivation of the Exchange Rate Model Based on Discounted Cash Flow Regarding Cash-for-Share ExchangesBUYER’S MAXIMUM ACCEPTABLE EXCHANGE RATIO (DCF MODEL) TARGET’S MINIMUM ACCEPTABLE EXCHANGE RATIO APPENDIX 21.5 Derivation of Equation (3) Exchange Ratio Consistent with Buyer’s Percentage Contribution to Newco NOTES CHAPTER 22: Structuring and Valuing Contingent Payments in M&AOVERVIEW AND SUMMARY CONTINGENT PAYMENTS IN M&A EARNOUTS CAN BE USEFUL; BUT IF SO, WHY AREN’T THEY UBIQUITOUS? EARNOUTS ARE OPTIONS ON FUTURE PERFORMANCE STRUCTURING AN EARNOUT TAX AND ACCOUNTING CONSIDERATIONS GENERIC APPROACH TO VALUING EARNOUT INSTRUMENTS Epilogue CONCLUSION: PROPOSING AND NEGOTIATING EARNOUTS AND OTHER CONTINGENT PAYMENTS NOTES CHAPTER 23: Risk Management in M&AINTRODUCTION AND SUMMARY VALUE AT RISK WHEN A DEAL FAILS TRANSACTION RISK: TYPES AND SOURCES TYPES OF RISK MANAGEMENT TYPES OF COLLARS AND THEIR ANALYSIS CONTINGENT VALUE RIGHTS: RHÔNE-POULENC’S ACQUISITION OF RORER STAGED ACQUIRING: THE CASE OF GENZYME’S INVESTMENT IN GELTEX CONCLUSION: WHERE AND WHEN TO MANAGE RISK NOTES CHAPTER 24: Social IssuesINTRODUCTION: THE IMPORTANCE OF SOCIAL ISSUES IN M&A SURVEY OF SOCIAL ISSUES FREQUENTLY ADDRESSED IN MERGER NEGOTIATIONS IMPACT OF SOCIAL ISSUES ON ATTRACTIVENESS OF THE DEAL CASE STUDIES IN THE ROLE OF SOCIAL ISSUES SUMMARY AND CONCLUSIONS NOTES

12 PART Five: Rules of the Road: Governance, Laws, and Regulations CHAPTER 25: How a Negotiated Deal Takes ShapeINTRODUCTION OVERVIEW OF THE DEAL SHAPING PROCESS RISKS TO THE DEAL: HOW THE PROCESS CAN GET DERAILED TRANSACTION PLANNING AND PREPARATION INITIATING DISCUSSIONS: GAINING AN EARLY SENSE OF THE POSSIBILITIES FIRST-ROUND DOCUMENTS: TERM SHEET, LETTER OF INTENT, AGREEMENTS ABOUT CONFIDENTIALITY, STANDSTILL, AND ENGAGEMENT OF ADVISERS THE DEFINITIVE AGREEMENT DISCLOSURE TO INVESTORS AND REGULATORS GAINING APPROVAL FOR THE DEAL CASE STUDY: DAIMLER-BENZ AND CHRYSLER SUMMARY AND CONCLUSIONS NOTES CHAPTER 26: Governance in M&A: The Board of Directors and Shareholder VotingINTRODUCTION GOVERNING WELL IS HARD TO DO GOOD GOVERNANCE PAYS HOW SHAREHOLDERS RULE FIDUCIARY DUTIES OF TARGET DIRECTORS IN CONSIDERING M&A PRACTICAL IMPLICATIONS: PREPARING FOR THE BOARD’S REVIEW OF A DEAL CODA: HOW CAN FIRMS BE GOVERNED BETTER? NOTES CHAPTER 27: Rules of the Road: Securities Law, Issuance Process, Disclosure, and Insider TradingINTRODUCTION OVERVIEW OF KEY SECURITIES LAWS AND RULES IN THE UNITED STATES KEY IMPLICATION: DISCLOSURE KEY IMPLICATION: INSIDER TRADING KEY IMPLICATION: OBSERVANCE OF PROCESS SUMMARY AND CONCLUSIONS NOTES CHAPTER 28: Rules of the Road: Antitrust LawINTRODUCTION ANTITRUST LAW: HISTORY AND MOTIVES OVERVIEW OF ANTITRUST REGULATORS AND LAWS AFFECTING MERGERS AND ACQUISITIONS U.S. PREMERGER REVIEW PROCESS: HART-SCOTT-RODINO AND EXON-FLORIO ANTITRUST REGULATION OF M&A IN THE EUROPEAN UNION CRITICAL PERSPECTIVES ON ANTITRUST POLICY SUMMARY AND CONCLUSIONS NOTES CHAPTER 29: Documenting the M&A DealINTRODUCTION FIRST-ROUND DOCUMENTS DEFINITIVE AGREEMENT MERGER PROXY STATEMENT AND PROSPECTUS CONCLUSION

13 PART Six: Competition, Hostility, and Behavioral Effects in M&A CHAPTER 30: Negotiating the DealINTRODUCTION THE RELEVANCE OF NEGOTIATION PROCESS BEHAVIORAL FINANCE INFLUENCING BARGAINING OUTCOMES: AN OVERVIEW OF THE CHALLENGE PRACTICAL ADVICE: HOW TO PREPARE FOR A NEGOTIATION MANAGE THE NEGOTIATION PROCESS PROACTIVELY SUMMARY AND CONCLUSIONS NOTES CHAPTER 31: Auctions in M&AINTRODUCTION AUCTION STRUCTURES AND MOTIVES ADVANTAGES AND DISADVANTAGES OF AUCTIONS AUCTIONS IN PRACTICE: THE CASE OF RJR NABISCO THE “WINNER’S CURSE” IN M&A: IS IT REAL? SOME PRACTICAL ADVICE TO SELLERS IN AUCTIONS SUMMARY AND CONCLUSIONS NOTES CHAPTER 32: Hostile Takeovers: Preparing a Bid in Light of Competition and ArbitrageINTRODUCTION: TAKEOVERS ARE GAMES A PROFILE OF HOSTILE TAKEOVERS BE AWARE OF THE PLAYERS, BOTH ON THE FIELD AND OFF THE ARB IS THE CONSUMMATE ECONOMIC ACTOR INTERPRETING ARBITRAGE SPREADS THE ARB ASSESSES A RECAPITALIZATION PROPOSAL IN TERMS OF BLENDED VALUE GOVERNMENT CONSTRAINTS ON THE GAME SELLING SHAREHOLDERS FACE A PRISONER’S DILEMMA TO SET A BID PRICE: THINK LIKE AN INVESTOR CONCLUSION: THE GAME HAS IMPLICATIONS FOR DESIGN AND DEFENSE OF TAKEOVERS NOTES CHAPTER 33: Takeover Attack and DefenseINTRODUCTION PREVALENCE AND DISSUASIVE INFLUENCE OF ANTITAKEOVER DEFENSES INVESTOR REACTION TO ANNOUNCEMENTS OF ANTITAKEOVER DEFENSES ECONOMIC EFFECTS OF ATTACK AND DEFENSE TACTICS OF TAKEOVER ATTACK TACTICS OF TAKEOVER DEFENSE SUMMARY AND IMPLICATIONS FOR THE PRACTITIONER NOTES CHAPTER 34: The Leveraged Restructuring as a Takeover Defense: The Case of American StandardINTRODUCTION THE AMERICAN STANDARD CASE THE RESPONSE RESTRUCTURING DEFENSES: MANAGEMENT BUYOUT AND LEVERAGED RECAPITALIZATION WHEN DOES A RESTRUCTURING DEFENSE MAKE SENSE? CONCLUSION SPECIAL NOTE NOTES

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