MERGERS & ACQUISITIONS
COURSE SYLLABUS AND OUTLINE
PACE UNIVERSITY
LUBIN SCHOOL OF BUSINESS
1 Martine Avenue, White Plains, NY 10606
FIN 648 - SPRING 2012 - CRN 20444
Dr. S. Kaushik
Office:
Class Hours
Fax:
Rm 542, GC/WP
Office Hours:
Thur 6:00-8:45 p.m. Office Phone:
(914) 422 4184
E-mail:
Wed/Thurs 4:00-6:00 p.m.
(914) 422 4350
skaushik@pace.edu
Course Overview:
Analyzes corporate combinations and their effects on management, labor, the consumer, the
economy, etc. topics included the economic and financial setting of business combinations, the
motives for mergers, merger valuation, merger financing, merger negotiations and the
consequences of such corporate activities.
This course examines the process by which takeovers and other corporate control transactions
take place, and the role for restructuring and shifts in resource allocation corporations. Of
particular interest will be the empirical evidence on economic and capital market reactions to
control transactions and to defensive measures by management against takeover bids, buyout
transactions, and the relation of takeovers to capital structure changes. A major focus will be
the interaction of strategic planning, value planning, financial strategies, and investment
decisions in the life cycle of growth of the firm. A wide range of literature and cases on mergers
and acquisitions will be covered. The combination of lectures, reading articles, and case
discussions will develop knowledge and maturity of judgment with respect to M&A decisions.
Basic Texts:
Donald M. DePamphilis, Mergers, Acquisitions, and Other Restructuring Activities, Elsevier/AP
(Academic Press), 6th edition, 2012, ISBN#: 978 0123854858
Recommended Supplementary Readings:
1. The Wall Street Journal
2. Selected Articles (Listed below).
Grading Policy:
•
•
•
•
Class Participation:
Homework:
Midterm Exam / Case Study
Final Exam / Case Study
20%
20%
30%
30%
Course Outline and Schedule of Topics:
Session / Date
1: 1/19
2: 1/26
3: 2/2
4: 2/9
5:
6:
7:
8:
2/16
2/23
3/1
3/8
9: 3/22
10: 3/29
11: 4/5
12: 4/12
13: 4/19
14:
4/26
Chapter
Topic / Readings
1
2
3
4
5
6
7
8
MT
9
10
11
12
13
14
15.16,17
Introduction to Mergers & Acquisitions
Regulatory Considerations
Takeover Market
Mergers & Acquisitions Planning
Implementation
Integration
Mergers & Acquisition Cash-Flow
Other Valuation Methods
MIDTERM EXAM – CASE PRESENTATION
Financial Modeling
Valuation of Privately Held Companies
Payments & Legal Considerations
Tax & Accounting Considerations
Financing Transactions
Joint Ventures, Partnerships, Strategic Alliances & Licensing
Alternative Exit & Restructuring Strategies: Divestitures etc.
Cross-Border Mergers & Acquisitions: Analysis & Valuation
FINAL CASE PRESENTATION
Topics and Additional Readings:
1. Introduction: The Takeover Process and the Legal Regulatory Process:
(a) After completing this session you should be able to :
• Understand the motivations for corporate restructuring and control including
expansion, sell-offs, corporate control, and ownership structure;
• Understand all takeover classifications including horizontal, vertical, and
conglomerate;
• Describe the forces affecting Mergers and Acquisitions;
• Describe the developments and trends in mergers and acquisition activities;
• Understand the anti-trust laws which: declares that any business contract,
combination, or conspiracy that restrains trade is illegal (the Sherman Act of
1890); prohibits unfair methods of competition (the Federal Trade Commission
Act 1914); forbids acquisition of assets that would lessen competition or tend to
create a monopoly (the Clayton Act of 1914 and the Celler-Kefauver Act of 1950);
Require that the US Justice Department and the to $15 million or 15% of the target’s
stock, whichever is less;
• Know the requirements of the Securities Act of 1933 and the Securities Act of 1934;
• Describe all the registration forms (e.g. 8-A, 8-B, and 10); reporting forms (e.g. 10-Q,
10-K, 8-K, and 13-F) and disclosure schedules (e.g.13-D, 13-E,13-G and 14-D);
• Learn all the agreements/contracts in mergers and acquisition negotiations;
• Understand the regulations governing inside4r trading;
• Discuss state regulations and their effectiveness in restricting takeover attempts;
• Understand the antitrust guidelines of international mergers.
(b) Additional Readings:
Donaldson, Gordon, “Voluntary Restructuring: The Case of General Mills,” Journal of
Financial Economics, 27, 1990, pp. 117-141.
Holderness, Clifford G. and Dennis P. Sheehan, “Raiders or Saviors?: The Evidence on
Six Controversial Investors,” Journal of Financial Economics 14, 1985, pp. 555-579.
2. Accounting for mergers and Acquisitions and Tax Planning Options:
(a) After completing this session, you should be able to:
• Describe and demonstrate the purchase method of acquisition accounting
and compare with the now-terminated pooling of interest method;
• Distinguish between table and tax-free transactions;
• Know the tax treatment of mergers under the purchase method of financial
accounting;
• Understand the tax consequences of a stock-for-stock exchange;
• Explain asset basis step-up;
• Analyze the role of taxes in the merger decision;
• Analyze taxes as a source of value in management buyouts.
(b) Additional Readings:
Baker, George P., “Beatrice: A Study in the Creation and Destruction of Value,” Journal
of Finance, 47 July 1992, pp. 1081-1119.
Ellert, J. C. “Mergers Antitrust Law Enforcement and Stockholder Returns,” Journal of
Finance, 31, 1976, pp. 715-732.
Lys, Thomas and Linda Vincent, “An Analysis of Value Destruction in AT&T’s
Acquisition of NCR,” Journal of Financial Economics, 39, 1995, pp. 353-378.
3. Strategic Process:
(a) After completing this session you should be able to:
• Define strategy in Mergers and Acquisitions and identify different
approaches to strategy;
• Understand competitive advantage cost leadership and product
differentiation;
• Determine entry barriers and their significance;
• Discuss different types of business goals;
• Explain the alignment of a firm to its environment;
• Identify fact ors resulting into vertical, horizontal, and conglomerate
mergers.
(b) Additional Readings:
Berger, Philip G. and Eli Ofek, “Diversification’s Effect on Firm Value, Journal of Financial
Economics, 37 January 1995, pp. 39-65.
Comment, Robert, and Gregg A. Jarrell, “Corporate Focus and Stock Returns,” Journal of
financial Economics, 37, January 1995, pp. 67-87.
Porter, Michael e., “From Competitive Advantage to Corporate Strategy, Harvard
Business Review, 65, May-June 1987, pp. 43-59.
4. Valuation Techniques in and Financing of M&As:
(a) After completing this session you should be able to:
• Understand the various valuation models and their strength and
limitations for mergers and acquisition purposes;
• Calculate the value of a target as a stand-alone company;
• Understand how to identify and value the synergies in a merger
and acquisition transaction;
• Know how to value improvements in the acquiring firm were the
acquisitions to succeed and the target to retain its “brand name”;
• Calculate the value of the acquisition;
• Calculate merger premiums or discounts;
• Understand the valuation techniques for privately held businesses;
• Distinguish between the use of cash and stock offer for acquiring a target,
and estimate and compare the costs of the acquisition under cash and
stock transactions;
• Consider and discuss the impact of financing choice on tax, accounting,
and capital structure implications, and information effects;
• Discuss bidding strategies in hostile takeovers.
(b) Additional Readings:
Kaplan, Steven N., and Richard S. Ruback, “The Valuation of Cash Flow
Forecasts: An Empirical Analysis,” Journal of Finance, 50, September
1995, pp. 1059-1093.
Copeland, tom, Tim Koller, and Jack Murrin, Valuation: Measuring and
Managing the Value of Companies, 3rd ed., New York: John Wiley & Sons,
2000
5. Theories of Mergers and Acquisitions:
(a) After completing this session you should be able to:
• Discuss the advantages and disadvantages of corporate diversifications;
• Understand the efficiency explanation as a rationale for mergers;
• Describe the information or signaling hypothesis of mergers;
• Learn the implications of the agency problems in a merger activity;
• Explain the free-rider problem and its solutions;
• Discuss motivations arising from unused tax shields;
• Understand that mergers and acquisitions may be pursued to achieve
Economics of scale and vertical integration;
• Understand that some explanations for mergers are dubious (e.g. lowering
Financing cost, and increasing financial gains and diversification benefits);
• Discuss empirical evidence on takeover gains (e.g. changes in stock returns
Around dates of takeover announcements);
• Discuss the disadvantages of mergers and acquisitions.
(b) Additional Readings:
Berkovitch, Elazar, and M.P. Narayanan, “Motives for Takeovers: An
Empirical Investigation”, Journal of financial and Quantitative
Analysis, 28, September 1993, pp. 347-362.
Jensen, Michael C., “The Modern Industrial Revolution, Exit, and the
Failure of Internal Control Systems”, Journal of Finance, 48, July 1993,
pp. 831-880.
Roll, Richard, “The Hubris Hypothesis of Corporate Takeover,” Journal of
Business, 59, April 1986, pp. 197-216.
6. Corporate Restructuring and Control:
(a) After completing this session you should be able to:
• Distinguish between managerial incentives and shareholder incentives;
• Understand how the differences between manager and shareholder
Incentives affect the ownership structure, and investment policies of
firms;
• Understand why and when management incentives may provide
motivations for corporate restructurings;
• Distinguish between ownership and controlling interest in a target
Company;
• Calculate control premium, and analyze comparative value of
controlling interest to a minority interest;
• Distinguish between control premiums from strategic mergers and
control premiums of equals;
• Discuss premium buybacks and exchange offers.
(b) Additional Readings:
John, Kose, and Eli Ofek, “Asset Sales and Increase in Focus,” Journal of
Financial Economics, 37(1), January 1995, pp. 105-126.
Kaplan, Steven N. and Michael S. Weisbach, :the Success of Acquisitions:
Evidence from Divestitures,” Journal of Finance, 47(1), March 1992, pp.
107-138.
Lang, Larry, Annette Poulsen, and Rene Stulz, “Asset Sales, Firm
Performance, and the Agency Costs of Managerial discretion,”
Journal of Financial Economics, 37(1), January 1995, pp.3-37.
7. M&A Strategies: Alliances, Joint-Ventures and LBOs:
(a) After completing this session you should be able to:
• Understand Joint Ventures and Business strategy;
• Identify the rationale for Joint ventures;
• Discuss failure and success of Joint Ventures;
• Discuss uses of Strategic Alliances;
• Outline the major sages of Leveraged Buyouts;
• Describe and explain the distinctions between going private
Transactions and leveraged buyouts (LBOs), management buyouts
(MBOs), and employee stock ownership plans (ESOPs);
• Conduct financial analysis of LBO candidates.
8. Takeover Defense:
(a) After completing this session, you should be able to:
• Distinguish between pre-offer and post-offer defenses;
• Understand why managers contest takeover bids;
• Describe management pre-offer defenses: greenmail, staggered board
arrangement, supermajority shareholdings, fair price restriction, waiting
period rule, restricted voting rights, poison pills, poison puts, and
lobbying for antitakeover legislation;
• Describe management post-offer defenses, e.g. litigation asset
restructuring, and liability restructuring;
• Explain whether takeover defenses are beneficial to shareholders;
• Discuss methods companies apply to reduce management-shareholder
conflicts, e.g. use of golden parachutes.
(b) Additional Readings:
Comment, Robert, and G. William Schwert, “Poison or Placebo?
Evidence On the Deterrence and Wealth Effects of Modern
Antitakeover Measures,” Journal of Financial Economics, 39, 1995,
pp. 3-43.
Karpoff, Jonathan M. and Paul H. Malatesta, and Ralph A. Walkling,
“Corporate Governance and Shareholder Initiatives: Empirical
Evidence,” Journal of Financial Economics, 42, 1996, pp. 365-395.
Mogavero, Damian J., and Michael F. Toyne, “The Impact of Golden
Parachutes on Fortune 500 Stock Returns: A Reexamination of the
Evidence,” Quarterly Journal of Business and Economics, 34, 1995,
p. 30-38.
9. Due Diligence, Implementation and Management Guides for M&As:
(a) After completing this session you should be able to:
• Explain the basic principles in mergers and acquisitions planning;
• Understand due diligence in M&As and its implementation;
• Formulate key rules in guiding sound mergers and acquisition activities;
• Identify rules for successful mergers;
• Explain why industry analysis is important in M&A planning;
• Determine when to sell and when to buy;
• Discuss possible post merger coordination issues.
(b) Additional Readings:
Anslinger, Patricia L., and Thomas E. Copeland, “Growth through
Acquisitions: A Fresh Look,” Harvard Business Review, 74, JanuaryFebruary 1996, pp. 126-135.
Baker, George P., “Beatrice: A Study in the Creation and Destruction of
Value,” Journal of Finance, 47, 1992, pp. 1081-1120.