Program:
Development Studies
Course Title:
Partnerships for Development
Course Code: DEST 511
Total Credits:
1.5
Total lecture Hours: 7.5
Course Lecturer: Uwem Essia
COURSE OVERVIEW AND OUTLINE
Course Description
The course focuses on the different partnerships
required for development, specifically:
• Partnership between civil society groups and
development institutions.
• Public-Private-Partnerships.
• Public-Public Partnerships.
• Mergers, Acquisitions and Corporate Restructuring.
• Leasing
COURSE OVERVIEW AND OUTLINE
Pedagogic Goal
• The students’ knowledge of different types of partnerships
enhanced.
Pedagogic Objectives
• Students learn how a Non Governmental Organization (NGO) can
collaborate with development institutions.
• Students know how government can partner with private
organizations for development of infrastructures.
• Students understand how private-private partnerships can be
facilitated.
Learning Objectives
• Knowledge of students on how NGOs can meet the requirements
of donor organizations increased.
• Understanding of public-private-partnerships (PPPs) increased.
• Students’ knowledge of mergers, acquisitions and corporate
restructuring and leasing increased.
COURSE OVERVIEW AND OUTLINE
Learning Outcomes
• Prior to or at graduation students have the relevant
competencies to operate NGOs that partner effectively
with development institutions and other stakeholders.
• Students understand issues related to mergers,
acquisitions and corporate restructuring.
Course Schedule and Topics
Section 1: CSO – Development Institutions’ Partnerships
1.1. Infrastructure PPPs
1.2. Traditional Project Delivery Approach
1.3. The PPP Model
1.4. Planning of PPP Projects
COURSE OVERVIEW AND OUTLINE
Section 2: Mergers, Acquisitions and Corporate Restructuring
2.1. Definitions
2.2. Synergy
2.3. Varieties of Mergers
2.4. Acquisitions
2.5. The importance of valuation
2.6. Doing a Deal
2.7. Start with an Offer
2.8. The Target's Response
2.9. Closing the Deal
2.10. Break Ups
2.11. Sell-Offs
2.12. Equity Carve-Outs
2.13. Spinoffs
2.14. Tracking Stock
2.15. Why Mergers can fail
COURSE OVERVIEW AND OUTLINE
Section 3: Leasing
3.1. Advantages of leasing
3.2. Types of Lease
3.3. Capital and Operating Lease
Section 1: CSO – Development Institutions’ Partnerships
1.1. Definition of CSOs
• CSOs comprise the full range of formal and informal organizations
operating within civil society:
– NGOs, community-based organizations (CBOs);
– indigenous peoples’ organizations (IPOs), academia;
– Journalist associations, faith-based organizations;
– Trade unions and trade associations;
• Civil society constitutes a third sector, existing alongside and
interacting with the state and market.
• The key terms used in dealing with CSOs include the following:
– Advocacy: CSOs change public opinion with regards to a given
issue.
– Watchdog: CSOs measure progress made towards achieving a
desired goal.
1: CSO – Development Institutions’ Partnerships ..1
1.1. Definition of CSOs
• Networking: coordinating other CSOs that work in a
particular sector.
• Umbrella CSO: CSO performing a coordinating and
representative function.
• Federations: CSOs in one area or sector work together
for goals that can best be achieved through greater
numbers.
UNDP can engage NGOs in three different ways:
• As implementing Partner - NGO is an executing agency
of a project.
– In that case the NGOs take full management responsibility of
the project.
1: CSO – Development Institutions’ Partnerships ..2
1.1. Definition of CSOs
• Contractor - the NGO provides a specific input to a
project, implementing partners takes responsibility.
• NGOs as recipients of grants – a grant agreement or
MOU is signed.
Review Questions
1. Describe at least 5 range of CSOs that you know
and their potentials roles in promoting
development.
2. Using the UNDP of any development organization
of your choice describe how NGOs can partner
with development institutions to promote
development.
Section 2: Infrastructure PPPs
2.1. Characteristics of PPP
• PPPs represent a form of multi-level governance,
involving relationships between different stakeholders.
• PPPs support innovative project designs and deliver
value for money by better controlling project risks.
• PPPs in infrastructures have three dynamics elements:
– It involves long-term contractual arrangement between the
public and private sector.
– The private sector is involved in facility design, construction,
financing, operations, and maintenance.
– Each partner shares in the potential risks and rewards
associated with delivery of the project.
2: Infrastructure PPPs .. 1
• PPPs are a formalized, contract based approach to
long-term partnership.
• PPP may imply a fixed partnership between a single
public sector entity and private sector firm.
• But neither the public nor the private sector is
monolithic:
– Both are often comprised of complex partnerships
between a range of organizations and actors.
2.2. Models of PPP
i. Design-Build-Operate-Maintain – private sector
takes full responsibility and risk.
2: Infrastructure PPPs …2
ii. Design-Build-Operate-Transfer – private operator
takes responsibility for creating the infrastructure but
transfers management to government.
iii. Build-operate-transfer – public institutions design
the facility, private partner builds, operates for a
while, and later transfers operation to government.
iv. Design-Build – private operator designs and builds
the facility for public institutions to manage.
v. Private Contract Fee Service (Operate and Maintain)
– the facility is designed and built directly by a
government institution, with the private vendor
responsible for managing it.
2: Infrastructure PPPs .. 3
vi. design-bid-build (Traditional model) – the government
agencies design the facility, a private organization is
selected through public tender and bidding to build, and
the facility is handed over to government.
2.3. Concession Type PPP Model
• The facility design, building, financing, operation and
maintenance is a single concession.
• The concessionaire recovers the investment over time.
• Recovery is either by collecting user fees or receiving an
annual fee over the life of a long-term contract.
• In a concession PPP both the public and private
partners may contribute to financing of the
infrastructure.
• Concessions often involve multi-level government
collaboration.
2: Infrastructure PPPs … 4
2.4. Planning of PPP Projects
• The relevant public agency often needs to develop
the performance specifications for the private
sector bidders.
• Most PPP projects provide opportunities for
government to intervene at different points of the
project cycle.
• Conflicts in PPPs are rooted in the differing interests
and incentives that the partners have in a project.
• Unpredicted government intervention along the
project cycle can generate political risks for private
partners.
2: Infrastructure PPPs ..5
2.4. Planning of PPP Projects
• But attempts by the private partners to charge
appropriate cost recovery fees may generate
political risks to the state.
• The state also faces the financial risk that may arise
if the project fails.
• Disputes in PPPs can arise over who should bear an
unexpected construction cost escalations.
• Other disputes may arise when the expected quality
of services are not met.
Review Questions
1. Discuss 3 models of PPP that you know.
2. What would you consider as the factors that
inhibit PPP in many SSA countries?
3. Explain the political and financial risks that the
government face with PPP projects.
3: Mergers, Acquisitions and Corporate Restructuring
3.1. Definitions - Acquisition
• When one company buys up another to become the
new owner, the purchase is called an acquisition.
• The acquired company is swallowed by the buyer
whose stock continues to be traded.
Merger
• This happens when two or more firms agree to become
a single new company.
• In effect, the merging firms surrender their stocks and
new company stock is issued in its place.
• Ideally mergers should occur between firms of
comparable sizes, but in reality mergers of equals are
not common.
• Indeed, the term merger is often used to describe
acquisition that both parties are fairly happy with.
3: Mergers, Acquisitions And Corporate Restructuring ..1
3.2. Synergy
• Synergy are the bonding and complementarities
that accrue to the newly merged business. Some of
such possible benefit include the following:
– Staff reductions - mergers can reduce the wage bill, thus
creating savings.
– Economies of scale - bigger businesses have improved
purchasing power and better negotiating advantage.
– Acquiring new technology – larger firms spend more on
R&D and attract valuable collaborations.
– Improved market reach and industry visibility - A merger
expands the marketing opportunity of the new firm.
3: Mergers, Acquisitions And Corporate Restructuring ..2
3.2. Synergy
• The acquiring firm pays a premium for synergy on
the market value of the companies they buy.
• This is so because a merger creates synergy or
increase in the post-merger share price.
• For buyers, the premium represents part of the
post-merger synergy they expect can be achieved.
• The minimum value of the synergy can be
determined by the following equation:
3: Mergers, Acquisitions And Corporate Restructuring ..3
3.3. Varieties of Mergers
• Horizontal merger - two companies that are in
direct competition and share the same product
lines and markets.
• Vertical merger - a customer and company or a
supplier and company merging.
• Market-extension merger - Two companies that sell
the same products in different markets.
• Product-extension merger - Two companies selling
different but related products in the same market.
• Conglomeration – two companies that have no
common business areas.
3: Mergers, Acquisitions and Corporate Restructuring … 4
3.3.1. Mergers distinguished by how the merger is
financed:
• Purchase Mergers - this occurs when the shares are
bought with cash or by issue of a debt instrument.
• Consolidation Mergers – this occurs when both
companies dissolve under the new entity.
Review Questions
1. Explain the concepts, mergers and acquisitions. Why is a
merger used to describe an acquisitions that both
parties are fairly happy with?
2. Define the term synergy? Explain some of the benefits
that accrue to the merging firm as synergy
3. Explain the varieties of mergers that you know.
4. Acquisitions
• Acquisitions involve one firm purchasing another there is no exchange of stock or consolidation.
• Acquisitions can either be congenial or hostile when a
party is not happy.
• Acquisition can be by cash, stock or a combination of
the two.
• It can also involve a company acquiring the assets of
another company.
• Acquisition can involve a reverse merger when a private
company buys a publicly-listed shell company.
• Together the merged public company become an
entirely new public corporation with tradable shares.
4. Acquisitions .. 1
• Mergers and acquisitions create synergy that makes
the value of the new business greater.
• The success of a merger or acquisition depends on
whether this synergy is achieved.
Review Questions
1. What is an acquisition? Explain the major forms of
acquisition that you know.
5. The Importance of Valuation
• The merging or acquiring companies must determine
whether the purchase will be beneficial to them.
• This requires that they determine how much the
company being acquired is really worth.
• There are many legitimate ways to value companies,
including the following:
• Comparative Ratios - The two principal ratios are priceearnings ratio and the enterprise-value-to-sale ratio:
– Price-Earnings Ratio (P/E Ratio) - an offer is a multiple of the
earnings of the target company. For example the acquiring
company can look at the P/E for all the stocks within the
same industry group.
5. The Importance of Valuation .. 1
– Enterprise-Value-to-Sales-Ratio (EV/Sales) - an offer is a
multiple of the revenues, based on the price-to-sales ratio of
other companies in the industry.
• Replacement Cost - acquisitions are based on the
cost of replacing the target company.
– The acquiring company can seek to buy the target firm
at the replacement cost.
• Discounted Cash Flow (DCF) – The target firm can be
valued at its estimated future cash flows discounted
to a present value using the company's weighted
average costs of capital (WACC).
6.Doing a Deal
6.1. Start with an Offer
• The decision to merge or acquire starts with a
tender offer.
• The acquiring company should buy 5% of the total
outstanding shares before it files with the Security
and Exchange Commission.
• Upon tendering, the buyer declares if it intends to
buy or keep the shares as an investment.
• The tender offer is advertised in the business press,
stating the offer price and the deadline.
• The shareholders in the target company must
accept (or reject) it.
6.Doing a Deal ..1
6.2. The Target's Response
• Once the tender offer has been made, the target
company can do one of several things:
– Accept the Terms of the Offer – and go ahead with the
deal.
– Attempt to Negotiate - the target's management can try
to negotiate more agreeable terms.
– Execute a Poison Pill or Some Other Hostile Takeover
Defense - The target company gets another buyer to buy
additional stock at a dramatic discount, and thus dilutes
the acquiring company's share and intercepts its control
of the company.
6.Doing a Deal ..2
6.2. The Target's Response
– Find a White Knight - the target company gets a friendlier
buyer or white knight who offers an equal or higher price
for the shares than the hostile bidder.
Note that: without regards to what the buying and
target company choose to do:
• The regulatory authorities can terminate a deal that
is considered harmful to the economy.
• The regulatory authorities can compel a buy-up or
merger of companies in the national interest.
6.Doing a Deal ..3
6.3. Break Ups
• To break-up or de-merge a large organization into
smaller organizations can enhance competitiveness.
• It can as well reduce the tendency for harmful
monopolization.
• Other reasons are as follows:
– to form subsidiaries of the parent organization. This can
help the company to raise additional equity funds.
– A break-up can boost a company's valuation by providing
incentives to the people who work in the separating
units.
– Shareholders get better information about the business
unit because it issues separate financial statements.
6.Doing A Deal ..4
6.4. Sell-Offs
• A sell-off, also known as a divestiture, is the outright
sale of a company’s subsidiary.
6.5. Equity Carve-Outs
• This allows a parent firm to trade the stocks of a
subsidiary that is growing faster than the others.
• A carve-out generates cash because shares in the
subsidiary are sold to the public.
• A carve-out also unlocks the value of the subsidiary
unit and enhances the parent's shareholder value.
6.Doing a Deal .. 5
6.6. Spinoffs
• A spinoff occurs when a subsidiary becomes an independent entity.
• The parent firm distributes shares of the subsidiary to its
shareholders through a stock dividend.
• Like the carve-out, the subsidiary becomes a separate legal entity
with a distinct management and board.
6.7. Tracking Stock
• A tracking stock is issued by a publicly held company to track the
value of one segment of the company.
• The stock allows the different segments of the company to be valued
differently by investors.
• Tracking stocks do not grant shareholders the same voting rights as
those of the main stock.
• Each share of tracking stock may have only a half or a quarter of a
vote. In rare cases, holders of tracking stock have no vote at all.
6.Doing a Deal ..6
6.8. Why Mergers can fail
• The considerations that motivated a merger may be
elusive. Practical realities may be more complex
than was imagined.
• The chances for success may be hampered by the
fact that corporate cultures of the companies vary.
• The merged company is concerned with cutting cost
while revenues, and ultimately, profits, suffer.
• Mergers are more successful when the deal makers
are realistic and willing to work together.
Review Questions
1.
2.
3.
4.
5.
What is a “White Knight” as it pertains to merger deals?
What are the benefits or dis-benefits of a breakup
What is a sell-off?
What is a spinoff and how is it different from a carve-out?
Discuss 2 key reasons why mergers fail
Section 7. Leasing
7.1. Definitions
• Leasing is an important source of external financing for
corporations.
• Lease financing may be cheaper than borrowing and
purchasing the asset due to tax considerations.
• Leasing may also conserve working capital and reduce
the risk of obsolescence.
• Leasing reduces capital equipment disposal problems.
• The term of a lease is usually less than the life of the
asset.
• Leasing is more flexible and convenient than buying an
asset.
7. Leasing ..1
7.2. Types of Lease
7.2.1. Direct Lease
• In a direct lease the lessee gains from the use of an
asset without becoming the asset’s lawful owner.
• The lessor retains the title and ownership of the asset
and receives remunerations from the lessee as agreed.
7.2.2. Sale and Leaseback
• In a sale and leaseback arrangement the owner sells to
a party, and leases the asset back.
• The new owner retains title and ownership in terms of
tax credits and depreciation allowances.
• But the lessee receives the funds from the sale of the
asset along with the use of the asset.
7. Leasing ..2
7.2.3. Leverage Lease
• In a leverage lease, a lender supplies the funds the lessor
requires to purchase the asset.
• The lessor in turn leases the asset, and is a debtor to the
lender who makes interest payments.
7.2.4. Capital and Operating Lease
• Subject to the relevant state laws, a capital lease must satisfy
the following conditions:
– ownership is transferred to the lessee on or prior to the
expiration of the lease obligation term.
– The lease contains a bargain purchase option that allows the
lessee to purchase the leased asset at a reasonable price.
• What is a lease. Compare and contrast leasing and buying a
property.
• Explain the following types of leases: direct lease, sale and
leaseback, leverage lease, capital and operating lease
Review Questions
1. What is a lease. Compare and contrast leasing and
buying a property.
2. Explain the following types of leases: direct lease,
sale and leaseback, leverage lease, capital and
operating lease
Selected Resources
• Charles Kenny and Sarah Dykstra (2013) The Global Partnership for
Development: A Review of MDG 8 and Proposals for the Post-2015
Development Agenda Background Research Paper Submitted to the High
Level Panel on the Post-2015 Development Agenda May
• UNDP (2006) UNDP and Civil Society Organizations A Toolkit for
Strengthening Partnerships
• Matti Siemiatycki (undated) The Theory and Practice of Infrastructure
Public-Private Partnerships Revisited: The Case of the Transportation Sector
• The Basics Of Mergers And Acquisitions
http://www.investopedia.com/university/mergers/
• Lena Petsa-Papanicolaou (2007) Success factors in mergers and acquisitions
: complexity theory and content analysis perspectives Being Doctoral
Dissertations. Paper 176. of the University of San Francisco
• Chemmanur, T., et al. (2009) A theory of contractual provisions in leasing J.
Finan. Intermediation, doi:10.1016/j.jfi.2007.09.002
• UN (2013) A renewed global partnership for development Being a Report
of the the UN System Task Team on the Post 2015 UN Development
Agenda, New York