Mergers, Acquisitions, and
Other Corporate Restructuring Activities
MBAF 624 Course Syllabus-Fall 2002 (8/26/02-12/13/02)
Monday 7:15-10:00, Hilton 107
Instructor:
Name: Don DePamphilis, Ph.D.
Office: Hilton 210
Phone: 310-338-7415
E-mail: dondepam@pacbell.net (easiest way to contact) or ddepamph@lmumail.lmu.edu
Office Hours: Mondays 4:00-6:45 P.M.; Wednesdays 1:00-4:00 P.M.; or by appointment.
Course Overview:
Learning Objectives: To provide students with knowledge of
1. what corporate restructuring is and why it occurs;
2. the impact of the regulatory environment on the M&A environment;
3. how value is created (or destroyed) as a result of corporate mergers, acquisitions,
divestitures, spin-offs, etc., through in-depth analysis of how to “do a deal.”;
4. how risks associated with the various approaches to creating value can be identified and
managed;
5. commonly used takeover tactics and defenses;
6. a process for selecting appropriate takeover tactics depending upon the types of antitakeover defenses in place at a target company;
7. how and when to apply valuation techniques under special circumstances;
8. the practical limitations of the various valuation techniques;
9. the importance of understanding assumptions underlying business valuations;
10. a highly practical “planning based approach” to managing the acquisition process;
11. challenges associated with each phase of the M&A process from developing acquisition
plans through post-closing integration;
12. the advantages and disadvantages of alternative deal structures;
13. how the various components of the deal structuring process interact to determine price;
14. how to manage the deal structuring process to minimize the risk that a business
combination will not meet expectations;
15. advantages and disadvantages of alternative ways to exit businesses;
16. applying financial modeling tools to evaluating mergers and acquisitions;
17. how the many tools and skills that have been learned in this and other courses are used in an
integrated manner in completing an acquisition; and
18. alliances/joint ventures as alternatives to mergers and acquisitions.
Description: The course is divided into two discrete sections: (1) Developing an in-depth
understanding of how and when to apply the appropriate tools and skills to successfully complete
a transaction and (2) the application of what has been learned to solving “real” world business
problems. All major elements of the acquisition process will be discussed in the context of a
logical process. The course will involve the application of what the student may have learned in
such courses as finance, accounting, business law, micro and macroeconomics, management,
negotiation, new ventures, entrepreneurship, strategic planning, and business policy/organization.
As part of pre-class preparation and in-class discussion, students will be asked to solve both
quantitative and qualitative problems and to analyze both publicly traded and privately owned
companies involving valuing synergy, control premiums, and leveraged buy-outs. Illustrations
will include practical ways to evaluate IPOs, new ventures, and Internet-related companies.
Students will be asked to form acquisition teams to develop highly realistic business and
acquisition plans that could be used to convince top management of an acquiring corporation, a
venture capital firm or a lender to fund their proposal. The focus will be on how to effectively
manage the process. As a key part of the learning experience, the course will require primary
research to obtain the necessary data to develop the acquisition plan, working within teams, and
the development of project management skills. The professor will illustrate how the process
works in practice by drawing upon his personal experience in managing more than 30
acquisitions, divestitures, alliances, joint ventures, equity partnerships, minority investments, and
licensing arrangements from the planning through implementation stages.
The professor will frequently relate concepts discussed in class to transactions currently in the
news to illustrate their application and limitations.
Who should take this course?: Those who are seeking to become entrepreneurs, financial
analysts, chief financial officers, operating managers, investment bankers, business brokers,
portfolio managers, investors, corporate development managers, strategic planning managers,
bank lending officers, auditors, venture capitalists, business appraisers, actuaries, corporate
attorneys, or who simply have an interest in the subject.
Prerequisites: The course presumes that students have knowledge of basic accounting,
economics, and financial management concepts and tools. Students should have had at least one
course in accounting, finance, and economics within the last two years or relevant work
experience.
Required Texts: Mergers, Acquisitions, and Other Restructuring Activities: An Integrated
Approach to Process, Tools, Cases, and Solutions by Donald M. DePamphilis, Academic Press,
San Diego, Ca., 2001 (ISBN: 012-210-735-7) and Techniques of Financial Analysis: A Guide to
Value Creation, 10th edition, by Erich A. Helfert, Irwin McGraw-Hill, New York, 2000 (ISBN: 007-229988-6).
Reference Texts: Financial Management: Theory and Practice, 8th edition, by Brigham, Eugene
F. and Gapenski, Louis C., The Dryden Press, Fort Worth, Tx. 1997.
Computer skill requirements: Students will need to know how to use spreadsheet software (e.g.,
Micorsoft Excel) no later than the fourth class meeting.
Grading: Students will be evaluated in five different ways:
Grade Points:
Examination (2 exams—100 points each)
Acquisition Team Project (see discussion below)1
Peer Review (see discussion below)
Assignments
--Assignment #1
--Assignment #2
--Assignment #3
Class participation (see discussion below)
1Team
200 points
230 points
30 points
10 points
50 points
40 points
40 points
600 points
project leaders have the potential to earn an additional 20 points based on an anonymous review of their
performance by their team mates.
2
Final letter grades will be assigned according to the following point scale:
A 576 - 600
A- 550 - 575
B+ 533 - 549
B 500 - 532
B- 480 - 499
C 450 - 479
D 420 - 449
F
< 420
At the end of the year, the professor reserves the right to lower the scale in the student’s favor.
Assignments will not be accepted after their due date, which is defined as the end of the class on
the day on which they are due. If the student is unable to attend a class, the student is expected to
send the instructor the assignment via e-mail no later than the due date. Make-up examinations
will be given only in cases of verified illness or death in the immediate family. The best way to
contact me is through e-mail (see first page for address).
Students are encouraged to ask the professor at any time for an “informal” evaluation of how they
are doing in the class.
Class Participation. Learning to speak clearly and succinctly on an impromptu or informal basis
in large groups is an essential skill that needs to be developed in whatever career the student
pursues. In the workplace environment, we are often judged as much by what we don’t say as by
what we do. Under no circumstances will a student have to feel concerned about being
embarrassed in front of their classmates. In-class discussion will always be treated in a
professional, non-threatening manner.
In the absence of active participation, the professor will call on students. Active participation is
defined to include both questions and comments. To receive the maximum number of points in
this category, the student will be expected to participate during every class by asking questions or
by making thoughtful comments. The quality of both questions and comments will receive
greater weight than frequency in determining the final participation point score. Obviously, the
student must attend most of the classes in order to get the maximum number of points.
Acquisition Team Project: Early in the term students will divide themselves into “teams” of
four-to-six students each to share the research, analysis, and field work required to design a viable
corporate acquisition proposal. The purpose of the Acquisition Project is to give students the
opportunity to apply the tools they have learned in an increasingly common situation, i.e.,
mergers and acquisitions.
Each team will be asked to represent an acquiring company or investment group whose business
strategy involves an acquisition or merger. The acquiring and target firms must be in the same
industry. The acquisition can involve a recent transaction (i.e., last 12 to 18 months), a current
transaction, or a hypothetical transaction involving two publicly traded firms, private companies,
or some combination. The use of publicly traded companies will facilitate data collection, and
the selection of companies in the same industry will simplify the analysis by eliminating the need
to analyze two different industries.
Selecting Companies to Study: The success of the Project will be greatly dependent on the
Team’s ability to understand the company’s operations, products, and the competitive dynamics
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of the industry in which it competes and to obtain financial, technical and market-related
information on the company. Teams are encouraged (but not required) to select a publicly traded
company, because both internal financial and operating data, as well as market/industry data, is
likely to be more readily available (e.g., through Disclosure, Value Line, Standard & Poors
Corporate Register, Thomas Register, etc.) than for a privately owned firm.
It is helpful, although not essential, that the acquiring companies, target companies, or corporate
divisions you evaluate be located in Southern California. This would enable teams to interview
key corporate personnel to obtain additional information. Keep in mind that detailed financial
information on publicly traded companies is likely to be available only on a consolidated basis.
Consequently, efforts to obtain detailed financial information on a specific operating division of a
diversified publicly traded company are likely to be very frustrating.
While there are no restrictions on the size and type of company you select, I suggest that teams
select relatively small, uncomplicated businesses such as single product, independent companies
or operating units within larger companies. For those teams that choose to select privately owned
companies here in Southern California, small companies, particularly those that are considering
“going public” or attempting to obtain additional funding from venture capitalists, may be more
receptive to cooperating with your team. Contacting the president, general manager, or chief
financial officer of the company or division is a good place to start. Commercial and industrial
parks (e.g., the Irvine Spectrum in Irvine, California) offer dozens of potential candidates for your
analysis.
For those that choose a private company, assure management that they will be provided with a
final report and presentation in order to more readily obtain the necessary information.
Emphasize to senior management that the report will contain a recommendation(s) of how to
increase the “going concern” value of their business and a valuation of the business. Also
emphasize that the results of the study and any information that they provide to your team will be
kept confidential.
Students should not consider financial services companies such as banks, insurance, or leasing
companies as we will not be discussing how to deal with these types of firms. Furthermore, it is
recommended that students not select airlines due to the extensive use of equipment leasing,
which create challenges not adequately addressed in the course.
Teams may also choose to represent an acquiring company, which has actually completed an
acquisition within the last 12-to-18 months. If students choose to evaluate a recent transaction,
they must address the key elements of the acquisition as outlined below as if the transaction had
not taken place. However, based on their analysis, they must be able to answer the question of
whether the acquiring firm overpaid, underpaid, or paid “fair market value” for the target firm
and why. This may require that the Team undertake several activities or evaluate options that may
not have actually been undertaken by the acquiring company. In this instance, the Team must
determine and justify what it considers to be appropriate terms and conditions for the transaction.
Alternatively, the Team must vigorously justify the actual terms and conditions of the transaction.
Students are encouraged to consult with the Professor about selecting a “Target” company early
in the selection process if there are questions about the appropriateness of a potential Target.
The Professor will have final approval of the companies to be used in the Acquisition Project.
In the past, students have developed business plans for their own companies (both public and
private) and for a business they were planning to start. The latter option represents an excellent
opportunity to get input from both the Professor and other students.
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Each acquisition team is encouraged to develop mission statements, strategies and action plans
that are different from what the selected company may be saying publicly if the team feels that
this is appropriate.
The Acquisition Team Project will be completed by each team submitting a business plan to the
Professor in both hard copy form and on a diskette. The cover page should indicate the team
members and the section(s) each member was responsible for completing, e.g., Julie Chang
completed the financial statements for the acquiring and target companies, David Martino and
Leslie Van Houton were responsible for developing the business strategy, etc.
Acquisition Team Project Business and Acquisition Plans: Each team will submit a business plan,
which includes an acquisition plan, not to exceed 50 pages including supporting financial tables.
The acquirer’s business plan should include the following elements:
Introduction
1. Executive Summary: In 1-2 pages, describe what you are proposing to do, why, how it
will be accomplished, and by what date.
Business Plan (for acquiring firm)
1. Industry/market definition: Define the industry/market in which the target firm competes in
terms of size, growth rate, product offering, and other pertinent characteristics.
2. External analysis: Describe industry/market dynamics in terms of customers, competitors,
potential entrants, product/service substitutes, and suppliers.
3. Internal analysis: Describe the acquiring company’s strengths and weaknesses and how
they compare to the competition.
4. Opportunities/threats: Discuss major opportunities and threats that exist because of the
industry’s competitive dynamics. Be sure that you can show how these threats or
opportunities are a consequence of the industry dynamics described in (2).
5. Business mission/vision statement: Describe what industry/market needs are to be
satisfied, who the targeted customers are, and what resources or capabilities will be used to
satisfy these targeted customer needs.
6. Quantified strategic objectives (including completion dates): Indicate both financial (e.g.,
rates of return, sales, cash flow, share price, etc.) and non-financial (market share, being
perceived by customers or investors as number one in the targeted market in terms of market
share, product quality, price, innovation, etc.) goals.
7. Business strategy: Identify how the mission and objectives will be achieved (e.g. become
a cost leader, adopt a differentiation strategy, or focus on a specific market segment).
8. Implementation strategy: From a range of reasonable options (build or “go it alone”
strategy, partner via a joint venture or less formal business alliance, license, minority
investment, and acquisition), indicate which option would enable the acquiring firm to
best implement its chosen business strategy. Because of the nature of the course, you must
indicate that an implementation strategy involving an acquisition is preferred to the other
options and why.
9. Acquirer’s business plan valuation: Provide projected five year “standalone” income, balance
sheet, and cash flow statements for the acquiring company and estimate the firm’s value
based on the acquirer’s projected cash flows. State key forecast assumptions underlying the
projected financials and the valuation.
Acquisition Plan (developed by acquiring firm)
1. Plan objectives: Identify the specific purpose of the acquisition. This should include what
specific goals are to be achieved (e.g., cost reduction, access to new customers,
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2.
3.
4.
5.
6.
7.
8.
9.
distribution channels or proprietary technology, expanded production capacity, etc.) and
how the achievement of these goals will better enable the acquiring firm to implement its
business strategy (see (7) above).
Timetable: Establish a timetable for completing the acquisition including integration if
the target firm is to be merged with the acquiring firm’s operations. Identify key activities
that need to be accomplished and indicate the estimated time required to complete activities.
Also, estimate resources (i.e., people, money, licenses, etc.) needed to complete each activity.
Resource/capability evaluation: Evaluate the acquirer’s financial and managerial capability to
complete an acquisition. Identify affordability limits in terms of the maximum amount the
acquirer should pay for an acquisition. Explain how this figure is determined.
Tactics: Indicate the acquirer’s preferences for a “friendly” acquisition, controlling
interest, using stock, debt, cash, or some combination, etc.
Search plan: Develop screening criteria for identifying potential target firms and explain
plans for conducting the search, why the target ultimately selected was chosen, and
how you will make initial contact with the target firm.
Negotiation strategy: Identify key buyer/seller issues. Recommend a deal structure that
addresses the primary needs of all parties involved. Comment on the major elements of the
deal structure including the proposed acquisition vehicle, post closing organization, form of
payment, form of acquisition, and tax structure. Explain the justification for the approach
your team adopted in dealing with each aspect of the deal structure (e.g., why was a
particular tax strategy selected). Indicate how you might “close the gap” between the seller’s
price expectations and the offer price.
Purchase (offer) price estimate: Provide projected five year income, balance sheet, and cash
flow statements for the target firm and for the consolidated acquirer and target firms.
Develop a preliminary minimum and maximum purchase price range for the target. Specify
potential sources of and destroyers of value. List key forecast assumptions. Identify an
initial offer price, the composition (i.e., cash, stock, debt, or some combination) of the offer
price, and why you believe this price is appropriate in terms of meeting the primary needs of
both target and acquirer shareholders. The appropriateness of the offer price should reflect
your preliminary thinking about the deal structure.
Financing plan: Using the combined/consolidated financial statements, determine if the
proposed offer price can be financed without endangering the combined firm’s credit
worthiness or seriously eroding near-term profitability and cash flow.
Integration plan: Identify potential integration challenges and possible solutions. (For
those teams characterizing themselves as financial buyers, an integration plan may not
apply. Instead, they should identify an “exit” strategy.)
Each student will receive a financial model based on Microsoft’s Excel software illustrating how
deals may be structured and valued. Students may use the model for completing the acquisition
project, modify it to reflect the unique characteristics of their situation, or develop their own
model.
Acquisition Team Project Assessment
The total possible point score of 230 points for the project will be apportioned as follows:


33% for completeness: How well did the team address each point on the syllabus outline for
the Acquisition Team Project?
33% for quality of application: Did the team apply correctly tools and concepts learned in this
course? (Hint: Each team member should apply a number of different tools and concepts in
each section for which they are responsible.)
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
33% on creativity: Did the team specify clearly the acquirer’s and target’s objectives/needs?
Deal the address common deal structuring questions? Were they successful in meeting the
highest priority needs of both parties? Was the proposed deal structure realistic.
Each team member will receive the project’s total score adjusted for the professor’s evaluation of
the section(s) for which they are responsible. For example, while a paper may receive 200 points,
individual team members may receive 105% (i.e., 210 points) or 95% (i.e., 190 points) of the
project’s total score.
Team Member Peer Review: Each team member will be asked to anonymously evaluate their
team members by assigning a letter grade to their overall contribution to the team paper. The
student’s overall grade will be calculated by a simple average of the grades assigned by their team
members, with A=30, B=20, C=10, D=5, and F=0.
Project Leader Peer Review: Each team member will also be asked to evaluate anonymously
their project leader’s performance, with A = 20, B = 15, C = 10, and D = 5, and F = 0. The project
leader should be evaluated in terms of their leadership in scheduling meetings, setting meeting
agendas, facilitating meetings, motivating others to satisfy their commitments, and overall quality
control. Quality control refers to effort expended to ensure that all portions of the final document
have been completed and that the document reads as if it written by a single individual.
Assignments: Answers to assignments, other than problem sets, should be typed. Answers to
each question should be double-spaced and not exceed one page in length. Submissions that are
not typed will automatically lose one-half of the total potential point score. Answers to problem
sets should be legible.
Class Schedule
Week
Subject
August 26
1. Defining expectations
Following the first class, lecture notes will be
2. Course overview
emailed to students prior to class each week. If
3. Introduction to M&A
the notes are not received within two days of
A. What is the success
class, the student should notify the professor
rate?
immediately via email.
B. Why do they occur?
C. What are the key
characteristics of
mergers &
acquisitions that meet
expectations?
D. Future of M&A
Activity
3. Discuss forming teams
University Holiday (Labor Day)
1. Common Takeover
Required Reading: Chapters 1 (entire chapter)
Tactics and Defenses
and 3 (pp. 89-124) in DePamphilis and lecture
2. Class time will also be
notes entitled “Common Takeover Tactics and
used to allow students to
Defenses.”
begin to form teams
3. Acquisition Process:
Required reading: Chapter 4 in DePamphilis
September 2
September 9
September 16
Class Preparation
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Developing Business and
Acquisition Plans
September 23
1. Acquisition Process:
Search through Closing
September 30
1. Discounted Cash Flow
Valuation Methodologies
October 7
1. Relative Valuation
Methodologies
2. Discuss Assignment #2
October 14
First Exam
and lecture notes entitled “Acquisition Process
Phases 1 & 2” and Chapters 1 (pp. 16-25) and 4
(pp. 151-159) in Helfert.
By this date, students are to have organized
themselves into teams of four to five students
each. Teams will submit a listing of all team
members including names and email addresses.
Teams will also be expected to appoint a project
leader. The project leader’s responsibilities
include scheduling team meetings and
developing meeting agendas, motivating team
members to meet their commitments, and for
“quality control.” The project leader will have
the potential to receive as many as 20 additional
points based on a peer review by other team
members.
Required Reading: Chapters 5 (entire chapter)
and 6 (pp. 223-245; 254-261) in DePamphilis
and lecture notes entitled “Acquisition Notes
Phases 3-10.”
Required reading: Chapter 7 (pp. 271- 293) in
DePamphilis and Chapter 6 (pp. 220-243) in
Helfert as well as lecture notes entitled
“Discounted Cash Flow Valuation.”
Optional Reading: Chapter 8 (pp. 298-319) in
Helfert.
Assignment #1: Each Acquisition Team will
provide the Professor with the name of their
team’s acquiring company and acquisition
target, LBO candidate, etc., and 2-3 page project
plan. The project plan should include key
objectives (i.e., why the acquiring company
wants to acquire the target firm), key activities
that must be completed to meet the project
deadline, completion dates for each activity, and
the individuals(s) responsible for completing
each activity.
Required Reading: Chapter 7 (pp. 293-307; 310312) in DePamphilis and Chapter 10 (pp. 357362) in Helfert as well as lecture notes entitled
“Relative Valuation Methodologies.”
Assignment #2: Answer practice problems 1-10
distributed in prior class. Each student must
show all work to receive full credit. The
professor will have emailed the problems to the
students one week prior to class.
Review required reading material in
DePamphilis and Helfert, as well as class notes,
and homework assignments. Calculators
required.
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October 21
1.
October 28
1. Application of Financial
Modeling Techniques to
M&A Cont’d.
2. Discuss Assignment #3
November 4
1. Analyzing Privately Held
Companies
2. One-half hour of in-class
time will be devoted to
acquisition team meetings
November 11
November 18
November 25
December 2
December 9
Application of Financial
Modeling Techniques to
M&A
1. Deal Structuring Process:
Form of Payment,
Acquisition Vehicle, and
Post Acquisition
Organization
2. One-hour of in-class time
will be devoted to
acquisition team meetings
1. Deal Structuring Cont’d.:
Tax and Accounting
Treatment
2. One-half hour of in-class
time devoted to
acquisition team
meetings
1. Analyzing and Valuing
Leveraged Buyouts
2. One-half hour of in-class
time devoted to
acquisition team
meetings
3. Alternative Exit and
Restructuring Strategies
2. Peer review
Final Exam
Required Reading: Chapter 8 and lecture notes
entitled “Applying Financial Modeling
Techniques to Mergers and Acquisitions.”
Assignment #3: Read Chapter 14 (Gee Whiz
Media Business Case). The professor will email
a set of 5 questions about the case to the
students in advance of class. Typed answers to
the questions are to be limited to no more than
one page per question and to be submitted for
credit. Students should be prepared to discuss
the questions in class.
Work on Acquisition Team Project
Required Reading: Chapter 9 in DePamphilis
and lecture notes entitled “Analyzing Private
Companies” and Appendix III (pp. 453-466) in
Helfert.
Work on Acquisition Team Project. By this
time, students should have completed
Sections 1-5 of the Business Plan portion of
the Acquisition Project
Required Reading: Chapter 10 (pp. 387-407) in
DePamphilis and lecture notes entitled “Deal
Structuring.”
Work on Acquisition Team Project By this
time, teams should have completed Sections
6-9 of the Business Plan for the Acquisition
Project
Required Reading: Chapter 10 (pp. 407-428) in
DePamphilis and lecture notes on tax and
accounting treatment. .
Work on Acquisition Team Project
Required Reading: Chapter 11 and lecture notes
entitled “Leveraged Buyouts”
Work on Acquisition Team Project
Required Reading: Chapter 13 in DePamphilis
and lecture notes entitled “Alternative
Restructuring Strategies.”
Acquisition Team Projects due. None will be
accepted after this date.
Review required reading material, as well as
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class notes, since the mid-term exam.
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