Mergers & Acquisitions:
The Process
Prof. Ian Giddy
New York University
The Acquisition Process
Application: The “Stop and Shop” Deal
 Motivation for Takeover: Market Value vs. "Realizable
Value"
 Hostile vs. Friendly Takeover vs Management Buy
Out
 Restructuring of Debt and Equity Structure
 Leveraging and De-Leveraging
 Debt Covenants vs. Equity Control
 Use of High-Yield Bonds, Bank Debt, Private
Placements and Bridge Loan
 Pricing and Placing the Securities
 Subsequent Refinancing
Copyright ©1999 Ian H. Giddy
M&A 2
M&A Advisory Services:
1. Role of the Seller's Advisor
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Develop list of buyers
Analyze how different buyers would evaluate company
Determine value of the company and advise seller on
probable selling price range
Prepare descriptive materials showing strong points
Contact buyers
Control information process
Control bidding process
Advise on the structure of the transaction to give value to
both sides
Ensure all nonfinancial terms are settled early
Smooth postagreement documentation
Copyright ©1999 Ian H. Giddy
M&A 5
M&A Advisory Services:
2. Role of Buyer's Advisor
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Thoroughly review target & subs
Advise on probable price range
Advise on target's receptiveness
Evaluate target's options and anticipate actions
Devise tactics
Consider rival buyers
Recommend financial structure and plan financing
Advise on initial approach and follow-up
Function as liason
Advise on the changing tactical situation
Arrange the purchase of shares through a tender offer
Help arrange long term financing and asset sales
Copyright ©1999 Ian H. Giddy
M&A 6
Case Study: Citigroup
Questions:
 How would evaluate the probabilty that
there will be positive net economic value
out of the combination of Citicorp and
Travelers?
 Where will the value come from?
 How long should it take for the value to be
realized?
 What factors could destroy value?
Copyright ©1999 Ian H. Giddy
M&A 7
Value Based Management
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Improve strategic
and operational
decision making
Widen scope of
VBM to cover all
organizational
processes
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Focus on key
drivers of
corporate value
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Utilize the
Economic Profit
and Discounted
Cash Flow
valuation
techniques
Copyright ©1999 Ian H. Giddy
A Creative
Mindset
An Integrative
Process
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Focus business planning
around value creation
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Develop value oriented
targets and performance
measurement
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Restructure
compensation system
with an emphasis on
creating shareholder
value
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Evaluate strategic
investment decisions in
terms of their impact on
value
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Communicate value of
corporate plans to
investors and analysts
M&A 8
Analytic Framework For Diagnosing
Market Performance
1. Review market performance
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Determine returns to shareholders compared with other
investments
2. Analyze comparative corporate performance
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Develop initial picture of company performance that underlies
market performance
3. Understand corporate cash flow
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Identify where the corporation has been generating and
investing cash and the return this investment is generating
4. Synthesize market views
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Identify assumptions that form basis for current market value
Copyright ©1999 Ian H. Giddy
M&A 9
Impact Of Value Based Management
On Performance, Examples
Business
Retail Household
goods
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Shifted from broad
national growth
program to focus on
building regional
scale before
expanding
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30-40% potential
value increase
Insurance
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Repositioned product
portfolio to
emphasize products
most likely to create
value
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25% potential
value increase
Banks
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Chose growth versus
harvest strategy,
even though fiveyear return on equity
very similar
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124% potential
value increase
Copyright ©1999 Ian H. Giddy
Change in Behaviour
Impact
M&A 10
Impact Of Value Based Management
On Performance, Examples
Business
Oil Production
Copyright ©1999 Ian H. Giddy
Change in Behaviour
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Used new planning
and control process
to help drive major
change program;
dramatic
improvement in
corporate-business
dialogue
Impact
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Multimillion dollar
reduction in
planning function
through
streamlining
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Acquisition that
likely would not
have otherwise
happenned
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Exposed
nonperforming
managers
M&A 11
Impact Of Value Based Management
On Performance, Examples
Business
Telecommunications
Change in Behaviour
 Generated ideas for
value creation
 New service
 Premium
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Copyright ©1999 Ian H. Giddy
pricing
Around 40% of
planned
development projects
in one business unit
discontinued
Sales force
expansion plans
completely revised
after discovering how
much value
expansion can
destroy
Impact
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240% potential
value increase in
one unit
246% potential
value increase in
one unit
n/a
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n/a
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M&A 12
Framework For PostAcquisition
Integration: Steps 1 and 2
1. Clarify purpose/set expectations
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Establish a transition mechanism
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Manage expectations of acquired management
Reach agreement on top organizational issues
Plan and schedule first postacquisition actions
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2. Communicate, control, and plan integration
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Reassure key constituencies
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Agree on a “get-acquainted” stage
Take the necessary control actions
Plan integration process
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Copyright ©1999 Ian H. Giddy
M&A 13
Framework For PostAcquisition
Integration: Steps 3 and 4
3. Develop strategy/basic structure
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Organize fact-finding task forces
Establish and test initial working hypothesis
Build a fact-based understanding of the comparative
business systems and market positions of the companies
Identify opportunities for growth and enhancement of
competitive advantage
Rank priorities
4. Refine organization/strategy
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review initial strategy, including test of anticipated
operating synergies
Review organizational similarities and differences
Implement strategic and organizational change
Copyright ©1999 Ian H. Giddy
M&A 14
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