Course Title: FBE 460 MERGERS, ACQUISITIONS AND
RESTRUCTURING
Syllabus for Fall 2012
Professor: Lloyd Levitin
Office:
Acc. 301E
Office Phone: 310-740-6524
E-mail: levitin@marshall.usc.edu
Teaching Assistant: Alexander Berkenkamp (berkenka@usc.edu
Lecture Class
Mon/Wed
4:00 – 5:50 PM
Office Hours
Mon
Tue
Wed
2:45 – 3:45 PM
2:15 – 3:15 PM
2:45 – 3:45 PM
Room: HOH 305
Course Description
Practical understanding of the major strategic, economic, financial, human resources, and
governance issues of mergers, acquisitions, and restructuring. The course is suitable for any
Marshall undergraduate who desires a basic knowledge of M&A transactions in order to do
effective work in a wide range of fields, including corporate development, corporate finance,
investment banking, and consulting. The course is most suitable for students considering
careers in finance.
Learning Objectives
This course will help you to:
 Understand the role that M&A plays in the contemporary global market, and its use as a
strategic tool to provide growth, enhance competitive position, transform a company or
industry, and create shareholder value.
 Develop a framework that can be used for analyzing M&A transactions including
understanding strategic rationale, valuation methodologies, deal structures, bidding
strategies, risk assessments, and the need for a value proposition.
 Know how M&A can be used successfully as well as its pitfalls, dangers and risks.
 Foster an understanding of the M&A process from target selection to doing the deal
(including due diligence, integration planning, negotiating the agreement, announcing the
deal), to closing and integration.
 Have an understanding of commonly used takeover tactics and defenses.
 Choose a path for restructuring that will meet corporate goals and create shareholder value.
 Understand the practical limitations of the various valuation approaches.
 Manage the deal structuring process to minimize the risk that a merger or acquisition will not
meet expectations.
 Know when alliances or joint ventures are preferable alternatives to mergers and acquisitions.
 Be able to form an opinion as to probable success about a proposed deal.
 Develop a concept, design a deal, and present a proposal for a merger and acquisition transaction.
 Understand how value is created (or destroyed) as result of corporate mergers,
acquisitions, and restructuring transactions.
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Prerequisite
BUAD 215 or BUAD 306
Required Materials
 APPLIED MERGERS AND ACQUISITIONS(UNIVERSITY EDITION) by
R. Bruner (Wiley, 2004) ISBN: 0471395064
Course Notes: Copies of lecture slides and other class information are available through
your Blackboard account.
Teaching Methods
This course is taught through a combination of readings, a group project, and lectures. Each
session will involve class discussion based on the lectures or assigned readings. We begin each
session with a discussion of current events. You are encouraged to visit dealbook.nytimes.com
before each class to obtain a grasp of recent news.
About the Instructor
Lloyd Levitin is a Professor of Clinical Finance and Business Economics at Marshall. He was
Executive Vice President and CFO of Pacific Enterprises from 1982-1995 (now Sempra
Energy), and was actively involved in the firm’s diversification program which included
numerous acquisitions. He testified as an expert on utility diversification to the Senate
Finance Committee of the U.S. Congress and has been a consultant for JurEcon, Inc., a
nationwide consulting and research firm for management and counsel. He has a MBA from
Wharton and a JD from University of San Francisco. He practiced as a CPA after receiving
his MBA, and as an attorney after receiving his JD.
Grading Policies:
Assignments
TESTS
Mid-Term
Final Exam
Points
% of Grade
25
30
25%
30%
20
10
10
5
100
20%
10%
10%
5%
100%
M&A PITCH BOOK (Group Project)
Pitch Book
Oral Presentation
Peer Evaluation
Class Participation
TOTAL
Final grades represent how you perform in the class relative to other students. Your grade
will not be based on a mandated target, but on your performance. Three items are considered
when assigning final grades:
1. Your average weighted score as a percentage of the available points for all assignments
(the points you receive divided by the number of points possible).
2. The overall average percentage score within the class.
3. Your ranking among all students in the class.
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Midterm and Final Exam (Midterm 25% of your grade; Final 30% of your grade)
The midterm and final exam will be closed-book, closed-notes. The final exam is
cumulative from the beginning of the course. Laptops or any hand-held device with email
capabilities cannot be used. You should bring a calculator to perform calculations.
M&A Pitch Book (20% of your grade)
This group project demonstrates your progress towards one of the key learning
objectives of the course: “Develop a concept, design a deal, and present a proposal for a
merger and acquisition transaction.” By the end of the third week of the semester, students
will divide themselves into “teams” of four-to-eight students each to play the role of a
publicly-traded company seeking to make an acquisition. Each team selects a real publiclytraded company it wants to represent, identifies a potential target (also a real publicly-traded
firm), and prepares a “Pitch Book,” the purpose of which is to obtain CEO approval to
commence negotiations. Key learning objectives include (1) M&A strategy, (2) target
company selection, (3) value creation in an M&A transaction, (4) deal structuring, and (5) risk
assessment and (6) ability to prepare a term sheet. This project will count 20% of your grade,
the ground rules and deliverables for this project are stated on pages 5 and 6 of this syllabus.
Oral Presentation on M&A Pitch Book (10% of Your Grade)
The team that prepares the Pitch Book (see above paragraph) will also prepare an oral
presentation to the class that supports the written project. The ground rules and deliverables
are stated on page 7 of this syllabus.
Peer Evaluation on M&A Pitch Book (10% of your grade)
Study groups provide a valuable learning experience – how to work effectively and
efficiently in groups (a common practice in Corporate America), learning from others, and
sharpening a student’s ability to communicate with others. However, human nature being
what it is, some students are tempted to relax and let others carry their load. In order to
provide an incentive for all students to make maximum contributions to the team project,
students will be asked to grade each team member’s contributions on a 10-point scale.
This evaluation is to be submitted by email to the Instructor before the last day of
classes. Any team member who does not email his (her) evaluation of team members will be
deemed to have given a 10-point score to each member of the team.
Class Participation (5% of your grade).
Attendance and participation are essential for success in this course. Students are
expected to actively participate in the class discussions. Class meetings will involve
discussions of the assigned readings and current events. Preparation for each class is essential.
In evaluating your class participation, I will consider the quality and frequency of your
participation, with a clear emphasis on quality. Students are required to display their name
cards in each class. I will have no other way to determine who is present and participating.
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Academic Integrity
USC seeks to maintain an optimal learning environment. General principles of academic honesty
include the concept of respect for the intellectual property of others, the expectation that individual
work will be submitted unless otherwise allowed by an instructor, and the obligations both to protect
one’s own academic work from misuse by others as well as to avoid using another’s work as one’s
own. All students are expected to understand and abide by these principles. SCampus, the Student
Guidebook, (www.usc.edu/scampus or http://scampus.usc.edu) contains the University Student
Conduct Code (see University Governance, Section 11.00), while the recommended sanctions are
located in Appendix A.
Students will be referred to the Office of Student Judicial Affairs and Community Standards for
further review, should there be any suspicion of academic dishonesty. The Review process can be
found at: http://www.usc.edu/student-affairs/SJACS/ . Failure to adhere to the academic conduct
standards set forth by these guidelines and our programs will not be tolerated by the USC Marshall
community and can lead to dismissal.
Student Disability
Any student requesting academic accommodations based on a disability is required to register
with Disability Services and Programs (DSP) each semester. A letter of verification for
approved accommodations can be obtained from DSP. Please be sure the letter is delivered to
be as early in the semester as possible. DSP is located in STU 301 and is open 8:30 AM to
5:00 PM, Monday through Friday. The phone number for DSP is (213) 740-0776. For more
information visit www.usc.edu/disability.
Technology Policy
Laptop and Internet usage is not permitted during academic or professional sessions unless
otherwise stated by the professor. Use of other personal communication devices, such as cell
phones, is considered unprofessional and is not permitted during academic or professional
sessions. ANY e-devices (cell phones, PDAs, iPhones, Blackberries, other texting devices,
laptops, iPods) must be completely turned off during class time. Videotaping faculty lectures
is not permitted, due to copyright infringement regulations. Audiotaping may be permitted if
approved by the professor. Use of any recorded material is reserved exclusively for USC
students registered in this class.
Classes Cancelled
Classed are cancelled for September 17, September 26 and October 1. Make-up classes will
be scheduled in the following week, which will be videotaped for those students unable to
attend.
Add/Drop Process
If you are absent six or more times prior to September 14, (the last day to withdraw from a
course with a grade of “W”), I may ask you to withdraw from the class by that date. These
policies maintain professionalism and ensure a system that is fair to all students.
Retention of Graded Coursework
Final exams and all other graded work which affected the course grade will be retained for
one year after the end of the course if the graded work has not been returned to the student
(i.e., if I returned a graded paper to you, it is your responsibility to file it, not mine).
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Emergency Preparedness/Course Continuity
In case of a declared emergency if travel to campus is not feasible, USC executive leadership
will announce an electronic way for instructors to teach students in their residence halls or
homes using a combination of Blackboard, teleconferencing, and other technologies.
Please activate your course in Blackboard with access to the course syllabus. Whether or not
you use Blackboard regularly, these preparations will be crucial in an emergency. USC's
Blackboard learning management system and support information is available at
blackboard.usc.edu.
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COURSE CALENDAR
TOPIC
Date
Daily Activities
Readings
The Basics
Week 1
8/27
8/29
M&A Market; Basic Terms
M&A Motivations; Payoff
Text, Chapter 1
Text, Chapters 2 and 3
Strategy
Week 2
9/3
9/5
M&A Strategy
Alternatives to M&A
Text, Chapter 6
Text, Chapter 17
Initiating the Deal, 1st Round
Documents
Due Diligence
Text, Chapter 7
Negotiating Acquisition
Agreement
Integration
Text, Chapters 25, 29 and 30
Auctions; Communication
Text, Chapters 31 and 35
Introduction to Deal
Structuring
Text, Chapter 18
Week 3
9/10
Acquisition
Process
9/12
Week 4
9/17
9/19
Week 5
9/24
9/26
Deal
Structuring
Week 6
10/1
10/3
Week 7
10/8
10/10
Week 8
10/15
Valuation
and Pricing
Takeover
Attack and
Defenses
Legal Aspects
10/17
Week 9
10/22
10/24
Week 10
10/29
10/31
Week 11
11/5
11/7
Week 12
11/12
11/14
Text, Chapter 8
Text, Chapter 36
Legal Form
Tax Issues
Text, Chapter 19
Form of Payment
Accounting Issues
Text, Chapters 20 and 22
Text, Chapter 16
Social issues and Deal
Structuring Summary
Text, Chapter 24
MIDTERM
How Value is Created
Valuation Methodologies
Text, Chapter 9
Text, Chapter 11
Valuation Methodologies
(continued)
Pricing
Hostile Bids and Takeover
Defenses
Hostile Bids and Takeover
Defenses (continued)
Text, Chapter 32
Governance
Securities Law, Antitrust
Text, Chapter 26
Text, Chapters 27 and 28
Text, Chapter 33
Email to specify your team’s selection of proposed buyer and target.
(1)
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Project Due
Dates
Email
instructor (1)
TOPIC
Date
Special Topics
Week 13
11/19
11/21
Week 14
11/26
11/28
Week 15
12/3
12/5
Week 16
12/12
Daily Activities
Readings
Risk Management
Holiday
Text, Chapter 23
LBOs, Levered Recaps
Text, Chapters 13, 5 and 12
to page 583
Pitch Book Presentations
Project Due
Dates
Pitch Book
Due at 4:00 PM
Pitch Book Presentations
Pitch Book Presentations
FINAL EXAM(1)
4:30-6:30 PM
(1)
http://www.usc.edu/academics/classes/term_20123/finals.html
Pitch Book Requirements
Objectives: This assignment addresses a goal of the course, to develop your ability to
conceive and design a proposed deal. It exercises the broad range of skills developed in this
course. A sample pitch book has been posted to Blackboard.
Assignment:
 Form a team of 4-8 to work on the Pitch Book.
 Pick the acquiring firm. It must be publicly-traded.
 Choose the target. It must be publicly-traded or a division of a publicly-traded firm.
It is recommended that you pick a publicly-traded target firm with whom there might
be some solid strategic rationale to combine. Think seriously about the motives and
economics of combination, and try to offer a hypothetical marriage that makes
business sense. Your strategic rationale for this deal should be summarized clearly in
your presentation, and should reflect careful thinking. You are free to choose any firm,
though if you have a choice, you should avoid unnecessarily complex combinations.
To spark ideas, you might consult lists of excellent firms and under performers.
By 4:00 p.m., September 26, please send an email to me indicating the proposed buyer
and target firm in your proposed deal, and a brief discussion about why you will be
recommending this target. Discuss why your firm (the acquirer) needs to make an
acquisition and why the proposed target is a good fit. The proposed acquisition must
be a purely hypothetical transaction. If you send the email after 4:00 PM on
September 26, you will receive a grade deduction.


Prepare the Pitch Book as if you were the VP of Corporate Development and the
addressee is your CEO.
Content of Pitch Book
1) Strategic rationale for the deal
2) Risks to be examined during due diligence
3) Valuation and pricing (use DCF, comparable company valuation and
comparable transactions)
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4) Synergies that can be realized (place a value thereon)
5) Proposed deal structure (include your proposed structure advantages and
disadvantages)
6) Impact of proposed deal on Buyer’s Balance Sheet and Income Statement
7) Integration Plan
8) Proposed Term Sheet
9) Alternatives to a M&A transaction which were rejected and reasons therefore
Guidance for topics for the pitch book and presentation:
Strategic rationale for your proposal. Is your proposal merely opportunistic, or is there a
sound strategic motive for it? The best motives are rooted in a view about the strategic
strengths, weaknesses, opportunities, and threats faced by a firm.
Risks. What are the risks on which a due diligence research team should focus? These might
include risks already disclosed in public information, as well as risks you hypothesize. Your
recommendations here should form the foundation for detailed due diligence review by the
buyer.
Target Valuation and pricing. Value Merge.XLS (a model prepared by the author of your
text and posted to Blackboard) may help in this regard, though you are not required to use it.
Financial statements (e.g., Form 10-K) on U.S.-listed firms can be downloaded easily from
the SEC’s database, EDGAR, (see www.sec.gov). Also, financials are obtainable from
Capital IQ. You should estimate a range of values for the target, and give your “walk away
price.”
Synergies -- Of course, synergies may be hard to measure, such as the benefits of new
technology, the creation of new strategic capabilities, and so on – cost synergies are usually
easiest to project.
Deal Structure. Recommend a deal structure for this hypothetical combination. Be as specific
and detailed as possible. One of the aims of this course is to illuminate the enormous range of
choice in deal design. Your presentation should reflect a grasp of this range in discussing why
your deal structure dominates alternatives.
Term sheet. Each presentation should close with a term sheet for the proposed transaction.
You should estimate a range of values for the target, and give your “walk-away price.”
Form of presentations. Remember that to be successful, this project requires careful analysis,
and effective presentation. This requires attractive format, crisp and concise wording, backed
up with appendices that contain greater detail for the reader. Bullet point lists, graphs, and
figures are especially useful in summarizing large ideas.
Capital IQ. You should find Capital IQ very helpful in this assignment.
Your mastery of facts about the target and buyer is very important.
The pitch book should not exceed 20 pages (excluding appendices, spreadsheets, etc.)
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Due Date for Pitch book: 4:00 PM on November 28. You must deliver a hard copy of
the pitch book at the beginning of class on November 28. Any assignment turned in
later will receive a grade deduction.
Oral Presentation on Pitch Book
 Present your proposal to a panel (i.e., the class) representing the buyer’s firm. The
instructor will be the CEO, the class will be the buyer’s executive committee.
 The presentations will be scheduled on November 28, December 3 and 5. (If we finish
earlier, the remaining time will be on course review).
 Plan your presentation to take no more than 30 minutes.
 As of the date of your presentation, your idea has been held secret by your team,
unknown to the target firm or the CEO and Executive Committee of the Buyer firm.
Your objective should be to convince the CEO to go forward with the proposed
transaction, committing time and capital.
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