Course Title: FBE 460: MERGERS, ACQUISITIONS AND
RESTRUCTURING
Syllabus for Fall 2013
Professor: Lloyd Levitin
Office:
Acc. 301E
Office Phone: 310-740-6524
E-mail: levitin@marshall.usc.edu
TA: Michael Haddad (mjhaddad@usc.edu)
Lecture Class
Monday and Wednesday 4:00 – 5:50 P.M.
Office Hours
Mondays
Tuesdays
Wednesdays
Thursdays
Room: JKP 102
2:45 – 3:45 P.M.
2:45 – 3:15 P.M.
2:45 – 3:45 P.M.
5:15 – 5:45 P.M.
Course Objective
The primary objective of the course is to provide a 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, 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.
 recognize the advantages and disadvantages of alternative deal structures.
 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.
 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.
 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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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, auditors, venture capitalists, business appraisers, consultants, or who simply have an interest
in the subject.
Prerequisite
BUAD 215 or BUAD 306
Required Materials
Mergers, Acquisitions and Other Restructuring Activities by Donald M. DePamphilis, (Academic Press,
6th edition, 2012)
Course Notes: Copies of lecture slides and other class information are available through your Blackboard
account.
Student’s Companion Site
This site can be accessed by using the link:
http://www.elsevierdirect.com/v2/companion.jsp?ISBN=9780123854858. The last item listed at this site is the
Student Study Guide which contains chapter summaries and practice exam questions and answers.
Teaching Methods
This course is taught through a combination of readings, a group project and lectures. 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 Summary:
Points
% of Grade
25
35
25.0%
35.0%
M&A PITCH BOOK (group project)
20
20.0%
PEER EVALUATION ON GROUP PROJECT
10
10.0%
CLASS PARTICIPATION
10
10.0%
100
100.0%
TESTS
Mid-Term
Final Exam
TOTAL
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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.
Midterm and Final Exam (Midterm 25% of your grade; Final 35% 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 first 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 publicly-traded 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 8 and 9 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 10point score to each member of the team.
Class Participation (10% 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
assigned cases from text, and current events. Preparation for each class is essential. In absence of active
participation, the professor will call on students.
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.
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).
Class Notes Policy
Notes or recordings made by students based on a university class or lecture may only be made for
purposes of individual or group study, or for other non-commercial purposes that reasonably arise from
the student’s membership in the class or attendance at the university. This restriction also applies to any
information distributed, disseminated or in any way displayed for use in relationship to the class, whether
obtained in class, via email or otherwise on the Internet, or via any other medium. Actions in violation of
this policy constitute a violation of the Student Conduct Code, and may subject an individual or entity to
university discipline and/or legal proceedings.
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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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Week 1
8/26
8/28
Week 2
9/2
9/4
Week 3
9/9
LECTURE TOPIC
ASSIGNMENTS AND DUE DATES
Introduction to M&A
Introduction to M&A - continued
Text, Chapter 1
Case 1.2. Proctor & Gamble’s Acquisition of
Gillette (pg. 49)
HOLIDAY
Regulatory Considerations
Regulatory Considerations - continued
Text, Chapter 2
Case 2.6. The Legacy of GE’s Aborted
Attempt to Merge with Honeywell (pg. 86)
Text, Chapter 3
9/11
Week 4
9/16
Common Takeover Tactics
Antitakeover Defenses and Corporate
Governance
Case 3.1. Mittal Acquires Arcelor – a Battle
of Global Titans in the European Corporate
Takeover Market (pg. 126)
9/18
Acquisition Process – Developing
Acquisition Plans
Text, Chapter 4
Case 4.4. BofA Acquires Countrywide
Financial Corporation (pg. 165)
Week 5
9/23
9/25
Week 6
9/30
Implementation: Search Through Closing
Implementation: Search Through Closing continued
Text, Chapter 5
Case 5.2. Exxon Mobil Buys XTO Energy In
A Bet On Natural Gas (pg. 198)
Integration
Text, Chapter 6
Case 6.5. The Challenges of Integrating Steel
Giants Arcelor and Mittal (pg. 228)
Case 6.6. Alcatel Merges with Lucent,
Highlighting Cross Cultural Issues (pg. 230)
10/2
MIDTERM (1st hour)
Introduction to Valuation (2nd hour)
Week 7
10/7
10/9
DCF Valuation
DCF Valuation – continued
Sections 2-5, inclusive, and section 8 of
Pitchbook due; Text, Chapter 7
Case 7.1. Hewlett-Packard Outbids Dell
Computer to Acquire 3 PAR (Key data will
be provided to facilitate your solution) (pg.
279)
Case 7.2. Creating a Global Luxury Hotel
Chain (pg. 281)
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Week 8
10/14
10/16
Week 9
10/21
10/23
LECTURE TOPIC
ASSIGNMENTS
Market Multiples of Comparable Public
Companies
Market Multiples of Comparable Past
Transactions, Breakup Value
Text, Chapter 8
Applying Financial Modeling Techniques
To Value Mergers and Acquisitions
Text, Chapter 9
Analysis and Valuation of Privately Held
Companies
Case 8.1. Google Buys YouTube:
Valuing A Firm In Absence Of Cash
Flow (pg. 320)
Case 9.2. Mars Buys Wrigley In One
Sweet Deal (pg. 360)
Text, Chapter 10
Case 10.1 Panda Ethanol Goes Public In
A Shell Corporation (Pg. 401)
Week 10
10/28
10/30
Week 11
11/4
11/6
Week 12
11/11
11/13
Week 13
11/18
11/20
Introduction To Deal Structuring;
Structuring the Deal: Payment and Legal
Considerations
Structuring the Deal: Payment and Legal
Considerations - continued
Structuring the Deal: Tax Considerations
Text, Chapter 11
Case 11.3. Boston Scientific Overcomes
Johnson & Johnson To Acquire Guidant –
A Lesson in Bidding Strategy (pg. 444)
Sections 6 and 7 of Pitchbook due;
Text, Chapter 12
Structuring the Deal: Accounting
Considerations
Case 12.2. Teva Pharmaceuticals Buys
Barr Pharmaceuticals To Create A Global
Powerhouse (pg. 477)
Private Equity, Hedge Funds, and LBO
Structures and Valuation
Private Equity, Hedge Funds, and LBO
Structures and Valuation - continued
Text, Chapter 13
M&A Alternatives – Joint Ventures,
Strategic Alliances and Licensing
Text, Chapter 14
Case 13.1. TXU Goes Private In The
Largest Private Equity Transaction In
History - A Retrospective Look (pg. 529)
Restructuring, Divestitures, Spin-Offs,
Text, Chapter 15
Carve-Outs, Split-Offs, and Tracking Stocks
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LECTURE TOPIC
Week 14
11/25
ASSIGNMENTS
Restructuring, Divestitures, Spin-Offs,
Case 15.5. Kraft Foods Undertakes SplitCarve-Outs, Split-Offs, and Tracking Stocks Off of Post Cereals In Merger-Related
- continued
Transaction (pg. 610)
PITCH BOOKS DUE (Sections 1-12)
11/27
Cross-Border Mergers and Acquisitions:
Analysis and Valuation
Week 15
12/2
12/4
Cross-Border Mergers and Acquisitions:
Analysis and Valuation - continued
Case 15.6. Sara Lee Attempts To Create
Value Through Restructuring (pg. 613)
Text, Chapter 17
Case 17.3. Wal-Mart’s International
Strategy Illustrates the Challenges and the
Potential of Global Expansion (pg. 690)
Review for Final
FINAL EXAM
December 11
4:30 to 6:30 P.M.
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.
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.

Prepare the Pitch Book as if you were the VP of Corporate Development and the addressee is
your CEO. As of the date of your proposal, your idea has been held secret by your team,
unknown to the target firm. Your aim should be to convince the CEO to go forward with the
proposed transaction, committing time and capital to consummate the deal.

Each team should address the following sections:
1. Executive Summary: include strategic rationale for deal, the expected purchase price,
sources of synergy value, and payment terms.
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2. Description of target company;
‒ Describe target firm and target firm’s industry/market in terms of size, growth rate,
product offerings and other relevant characteristics
‒ Discuss why target firm was chosen among other possible firms you considered
3. Show historical financial performance of target company for past 3 years and include latest
income statement and balance sheet
4. Compare target company with peers in terms of product offerings, corporate strategy, and
customers. Compare financial performance in terms of sales growth rate, margins, EPS
growth, ROE and leverage
5. Summarize target company ownership
6. Valuation of target company:
‒ Show valuation based on DCF analysis (stand-alone valuation plus synergies)
‒ Show valuation based on market multiples of comparable firms
‒ Show valuation based on market multiples of past transactions
‒ Show “football field” of values
‒ Develop a preliminary minimum and maximum purchase price range for the target
firm
7. Propose a recommended financing plan (cash, debt or stock) without endangering the
acquiring firm’s credit worthiness or creating unacceptable EPS dilution
8. Identify potential integration challenges and possible solutions. For those teams
characterizing themselves as financial buyers, identify an appropriate exit strategy.
9. Identify possible risks to the deal and if they can be managed, and if so, how.
10. Includes a hypothetical term sheet: price range, form of payment, form of transaction, key
representations and warranties, covenants, conditions
11. Strategy for negotiation
12. Appendices
‒ List articles read and data sources
‒ Include any detailed analyses used to support summary statements made in the
“body” of the paper
‒ Include detailed information on possible synergies, financial forecasts of target
company performance, forecast of buyer company including target

Due Dates
There are 12 sections in the pitchbook (see above). The pitchbook is due in three
installments:
(1) Sections 2-5, inclusive, and Section 8 on Oct 7. Weight: 5% of grade
(2) Sections 6 and 7 due on Nov 4. Weight: 5% of grade
(3) Completed pitchbook (Section 1-12, inclusive) due on Nov 25. Weight 10% of grade.
You must deliver a hard copy of each installment at the beginning of class on the date
due. Any assignment turned in late will receive a grade reduction.
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